Earnings News
With earnings season well underway there are lots of reports of high flying stocks still doing well and poor performers continuing to do badly. More interesting though is IBM which looks like it’s about to stop doing badly and start doing well and it has a stock price that hasn’t realised it yet.
Commentators on the stock are not hard to find, both believers and bemoaners, but what interests me is that the numbers are now beginning to point to a recovery.
Specifically the strategic imperatives business which now accounts for 45% of revenues grew by 11% while the older legacy business fell by 8%. More importantly though is that growth at the strategic initiatives business which (having increased 7% last quarter) is beginning to accelerate and saw growth of 20% in the cloud business, “As a Service” grew revenue by 24% and Security solutions grew 50%.
People often talk about a company being on the verge of a turn-around or an inflexion point when it’s already well priced into the stock. With a TTM PE of 13.5 and yield of 3.7%, IBM looks like a refreshing exception.
Value Stocks
There was an excellent article in Seeking Alpha by “Uncorrelated Returns” and also in Barrons about Conduent (CNDT), the business outsourcing firm that was purchased in 2009 by Xerox.
The company was poorly managed for years by Xerox and saw its margins drop from mid teens to high single digits. However, since then;
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the business has been spun off (last December) so it is once again in control of its own destiny,
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Carl Icahn has bought in
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CEO Ashok Vemuri has been appointed (having previously worked at Infosys and 2 years successfully turning around iGate as CEO before its sale to Capgemini) and is cutting costs and unprofitable businesses like an owner.
With the CEO’s successful track record and $700 million of cost reductions targeted, it’s not difficult to see margins increasing from 10% to 15% and boosting EPS to $1.42. With the stock currently at $15.72 that’s a PE multiple of just 11.1.
Consensus earnings forecasts are a bit more conservative than mine at $1.17. But with outsourcing peers priced on PEs of around 19 a price for Conduent of $22.00 looks achievable. That’s 40% higher than Fridays close.
*There was also an excellent article on Tractor Supply in Fool.com entitled “How Tractor Supply Is Defying the Train Wreck of Retail”. *
Tractor Supply is a virtual monopoly, supplying rural areas with everything they need from fencing, farm tools, footwear, farm gear, pet feed and supplies. With 1,630 stores it has a first mover advantage in rural areas where it is able to charge a healthy premium as it has largely avoided competition from the big retailers and ecommerce. This looks set to continue as rural areas don't meet the return of investment requirements of the big retailers, Tractor Supply’s heavy products are not suitable for drone delivery and the firm has generated brand loyalty from customers who enjoy meeting at its stores and catching up with a chat.
This has allowed Tractor Supply to grow sales by 9% CAGR over the past 3 years and EPS by over 12% to $3.27 in 2016. Consensus forecasts are for EPS of $3.62 next year and $4.01 in 2019.
Despite its excellent prospects the stock price has fallen by 25% from 52 week highs and is now trading on a TTM PE of 17.8 and forward PE of 14.7. It appears that Tractor Supply’s best bargain may be its own shares.
Growth Stocks
Several good articles on TJX this week but my favourite was Seeking Alpha’s “TJX: Sailing In Slumping Retail Market” highlighting TJX's planned store openings as a driver for earnings and the stock price. TJX is a brilliant company with 21 years of consecutive same store growth and there is little sign that that growth is reducing.
Management plan to increase store count by almost 50% from 3,800 to 5,600 with 260 new stores planned for 2017. It’s also developing its successful HomeSense stores, loyalty cards and ecommerce.
The current SP and PE would suggest a company that is approaching maturity and the end of its growth era. Or perhaps it just got caught up in the recent retail sell off.
However that presents an opportunity for investors as TJX has years of growth ahead and is nothing like the other bricks and mortar retailers.
Dividend
A well titled article in Fool.com “3 High-Yield Growth Stocks” threw up a number of interesting REITs. My favorite was Iron Moutain (IRM) with a stable business, stable cash flow, 5.6% dividend yield and forecasted 9% growth in adjusted funds from operations.
It’s a REIT operating in data management and shredding. It services more than 230,000 customers worldwide, including 95% of the Fortune 1000 and that business is stable and growing. Ideal for those looking for stable modest growth.
Insider
John Malone purchased 1.6 million stock in Liberty Global PLC LiLAC (LILAK) in July at around the current price of $22 taking his total holding to around $400 million.
The stock is a tracker of Liberty Globals cable assets in Latin America and the Carribean. A region that is benefitting from increased penetration of multichannel TV, broadband and wireless. The stock rose to around $27 on the news but has since fallen back to $22.04.
Stock price down almost 50% over the past 18 months despite steady revenue growth, forecast growth of 7%-9% and a valuation of just 5.2 times net operating cash flow.
Operating in a region that is benefitting from increased penetration of multichannel TV, broadband and wireless LILAK (with the largest fibre optic network) is well placed to benefit from growth. Shorter term a signifiant catalyst exists from LILAK's transition from a tracker status to regular standalone stock. Liberty Global recently said it remains on track for a spin-off of LiLAK by the end of the year. Such a move would be bullish as it would widen potential ownership to funds that aren’t permitted to hold tracker stocks and is generally preferred by investors.
This article is not a recommendation to buy or sell any security or derivative. Stocks are not suitable for all investors. Please do your own research.
Submitted October 22, 2017 at 10:30AM by InterestingNews1 http://ift.tt/2gBmWrD
