The Week Ahead: One stock that looks solid
Posted
Oct 04 2008, 11:01 AM
by
Andrew Horowitz
Rating:
Overshadowing the start to earnings season is the continuing
slowdown of the world economy. No longer a question of semantics, we are in a
general slowdown that has affected virtually every sector. Even with a massive
pork-barrel, ear-mark infested $850 billion banking bailout package, job losses
coupled with the higher cost of food and fuel has curtailed spending and is
expected to continue for the foreseeable future.
Next week is the official open to "earnings season" as Alcoa
is slated to report what could be a very weak number as we look at the latest
from the materials sector.
Monday, October 7
Today is a light day with only one report expected to show
any real interest. Thor Industries has been struggling and now finds itself
with a severe slowdown in earnings and sales growth dropping 25% over the last
quarter. It is no wonder this recreational vehicle manufacturer has been
battered by higher fuel prices along with a tepid consumer opting to sit home
with what they have rather than to buy and travel. Analysts predict earnings of
$.30 per share as compared to $.90 last quarter. Sitting on the sidelines on
this one may be a good idea.
Horowitz & Company NEGATIVE/ Stock Scouter
Tuesday, October 8
Aloca starts off with an after hours report that will be
watched carefully. The materials company is expected to show earnings of $.61
per share as they report the results of a very tough quarter. Shares are now
down 50% from the 52 week high as traders and investors fear that the world has
no use for aluminum products. Maybe it is a bit over the top and there is
something to salvage, but looking at sales and EPS trends does not provide any
belief that shares are terribly undervalued. Once we see a shift from fear to
acceptance, shares will probably get a decent lift. The question remains: When
will that occur?
Horowitz & Company NEUTRAL/ Stock Scouter
Wednesday, October 9
The consumer slowdown has now crept into all corners of the
retail industry. Even the low-cost alternatives such as Target, WalMart and
Costco have been hit hard by the realization that there is reduced appetite by
Americans to spend. Even though analysts predict that Costco will increase
their earnings to $.93 per share for the quarter, there is still a great deal
of pressure on the stock. From a fundamental standpoint, EPS growth is healthy,
sales are increasing and it appears that some of the recent selloff may be
overdone. Add to that the ongoing increase of institutional support and this
could actually be an interesting play into earnings as most are baking in the
worst scenario already.
Horowitz & Company NEGATIVE/ Stock Scouter
Monsanto is expected to come in today with a loss of $.13
per share. That is in addition to the loss of $.18 from last quarter. The
entire agriculture sector has been obliterated as the global slowdown (Is there
a theme here?) has taken hold and the developing nations have virtually stopped
production and consumption. Last week's report from Mosaic shook virtually all
of the stocks within this sector and unless there is a bounce caused by short-covering,
there is no reason to step in at this time.
Horowitz & Company NEUTRAL/ Stock Scouter
Thursday, October 9
Sallie Mae, which supplies funding and loan for education is
now the last of the quasi-government agencies that have not yet fallen. It is
very interesting that without any real collateral, loans are still being
paid....or are they? In a recent press release, CEO Albert Lord stated that, "we
expect our full-year loan loss provision to be within our previous estimates."
While delinquencies are rising, it appears that charge-offs are better. But
that statement only shows that there are more problems ahead and even as we
move into a post-bailout-bill world, this could be another government owned
agency that will actually be nationalized as was cousins Fannie Mae and Freddie
Mac. So, as the ban on short selling continues, there is only the availability
of utilizing options if you believe there is more downside. Take a quick look
at the October and November $10 puts as a protective measure.
Horowitz & Company NEUTRAL/ Stock Scouter
During 2008, the India
stock market has been bruised and beaten by the U.S. slowdown. Perhaps the greatest
pain has been felt by the service companies that heavily rely on U.S. contracts.
Infosys may be one of those rare cases that have been affected by the markets
over its fundamentals. Now off 45% from its 52-week high, shares look like they
may be cheap. The PEG ratio is coming in less than .37 and earnings growth has
been over 40% per year on average. While sales have been slowing, EPS growth
last quarter was 21% over the previous report which has not justified the sharp
drop in share price. Analysts are predicting a $.55 earnings result for the
quarter which is 15% higher than the previous period. In this environment that
is solid.
Horowitz & Company POSITIVE/ Stock Scouter
Friday, October 10
With all of the problems from the blue-chip sector, many
investors have been caught off guard by the violent swings in the names they
believed were long-term solid investments. Perhaps none is as troubling as
General Electric which has been plagued by a slowdown in consumer spending and
trouble within its financial unit. Recently, Warren Buffet was provided a
sweetheart deal just as the company announced a share offering of $12 billion
at $22.25. Earnings are soft and the outlook is dim. What is there to say but:
Hope for a bailout package that works... (See - Warren Buffet: Genius or Thief?)
Horowitz & Company NEGATIVE/ Stock Scouter
Related Reading:
The Horowitz & Company Outlook is designed for short-term, post-earnings trading. Please research all positions carefully before investing and carefully take into consideration your risk tolerance and portfolio objectives.
Andrew Horowitz is a money manager and the founder of Horowitz & Company. He is also the author of the bestselling book, The Disciplined Investor . Check out his latest investment idea or listen in as he hosts, The Disciplined Investor Podcast.
