- Hyatt Hotels (H) and Hospitality Properties (HPT) to outperform from neutral at RW Baird.
- AB InBev (BUD) to buy from neutral at Goldman.
- Amerisafe (AMSF) to buy from hold at Wunderlich.
- Northrop Grumman (NOC) to sector perform from underperform at RBC Capital.
- China Lodging Group (HTHT) to buy from hold at Brean Murray and to buy from neutral at Roth Capital.
The list of stocks under consideration has been reduced from eleven to ten, to seven and now in today's story four. Starting with five major defense contractors and six major oil companies (see Chasing Value: You Must Own Defense and Oil for Safety), I began a search to find one stock in each sector that might be suitable for inclusion in my list of 2011 stock picks posted last week Chasing Value: 2011 Stock Picks -- The Journey Begin.
Today we continue our analysis by examining return on equity (ROE), return on invested capital (ROIC), and price-to-earnings-to-growth (PEG). Each stock is ranked by sector and metric from best to worst. Sometimes there are clear winners and others there is little to separate one stock from the next. However, in total, a picture can be drawn that does portray a superior opportunity.
This series started with five major defense contractors and six major oil companies that are worthy considerations to help your portfolio survive a global crisis (see Chasing Value: You Must Own Defense and Oil for Safety). After the first review, one stock was eliminated from consideration: Petroleo Brasileiro (PBR). The reason is in the first story.
Today we continue our analysis by examining price-to-book (P/B), price-to-cash-flow (P/CF), and dividend yield. Each stock is ranked by sector and metric from best to worst. In the end we hope to narrow down our choices for candidates that might be added to Chasing Value: 2011 Stock Picks -- The Journey Begins.
All of this has its limits, but, if you are a fan of Professor Nassim NicholasTaleb and his best seller The Black Swan then you already have been warned that the events that have the greatest impact on our lives and our investments are most often unpredictable. We cannot predict the future nor can we anticipate the tragedies that will tank our portfolio's.
While I do believe predicting the future is, how should I say, futile, there are general clues as to which way the wind blows.
- Piper Jaffray upgraded Red Hat (RHT) to overweight from neutral.
- Honeywell (HON) was upgraded to outperform from neutral at Cowen.
- Regal-Beloit (RBC) and Actuant (ATU) were upgraded to buy from hold at Jefferies.
- RW Baird upgraded MedAssets (MDAS) to outperform from neutral.
- Savvis (SVVS) was upgraded to outperform from market perform at William Blair.
- Barclays upgraded Western Digital (WDC) to overweight from equal weight.
- LDK Solar (LDK) was upgraded to buy from hold at Needham.
- Legg Mason (LM) was upgraded to outperform from neutral at Macquarie.
- Agilent (A) was upgraded to buy from hold at Stifel Nicolaus.
- Wells Fargo upgraded Dean Foods (DF) to outperform from market perform and Developers Diversified (DDR) to market perform from underperform.
- Deutsche Bank also upgraded Developers Diversified, to buy from hold.
- Northrop Grumman (NOC) was upgraded to sell from conviction sell at Goldman.
- MYR Group (MYRG) was upgraded to buy from hold at BB&T.
Today I continue the exercise, hoping to find a stock worthy of placing a bet.
- Lockheed Martin: 3.77%
- Raytheon Company: 3.16%
- Northrop, Grumman: 2.89%
- General Dynamics: 2.59%
Equally important is that unlike many other industries, this is one tech sector that keeps most of its jobs at home and well-distributed through the country. This, too, preserves defense spending.
The major players in the industry after 20 years of consolidation are General Dynamics Corp (GD), Lockheed Martin (LMT), Boeing Co (BA), Northrop, Grumman (NOC), and Raytheon Company (RTN). In addition there are hundreds more making specialized parts in support of the majors and more still supplying basic elements like tires, wiring, computer processors, steel, aluminum, specialty glass, and ammunition. Then there are suppliers of manpower and smaller manufacturers producing unmanned aircraft drones and robots.
- Credit Suisse upgraded Netflix (NFLX) to neutral from underperform and raised its price target to $140 from $90. The firm's survey work indicates Netflix's streaming offering is compelling and will continue to grow as it acquires additional streaming content.
- Barclays upgraded Ford (F) to overweight from equal weight, citing the company's earnings power, reduced cost base, expectations for a return to prior peak margins and valuation. The firm raised its target to $16 from $15.
- Merriman upgraded OpenTable (OPEN) to buy from neutral based on increased visibility into international expansion from the toptable.com acquisition and upside from its Spotlight product.
- Siemens (SI) was upgraded to conviction buy from buy at Goldman.
- Medicis (MRX) was upgraded to buy from hold at Jefferies.
- IDEX (IEX) was upgraded to outperform from neutral at Baird.
- Goldman believes EOG Resources (EOG) can regain its premium multiple given its ability to find new horizontal liquids resource plays. The firm upgraded shares to conviction buy from buy and has a $129 price target on the stock.
- Deutsche Bank upgraded Macerich (MAC) to buy from hold following the company's Q2 results and raised its target for shares to $47 from $45.
- Needham upgraded QuinStreet (QNST) to strong buy from buy, citing the strong Q4 report and valuation, and has a $20 target on the stock.
- Macy's (M) was upgraded to buy from neutral at BofA/Merrill.
- Whole Foods (WFMI) was upgraded to buy from neutral at UBS.
- Texas Instruments (TXN) was upgraded to outperform from market perform at Raymond James.
Northrop Grumman (NOC) may be a U.S. Air Force favorite, but it does not deserve a place in your portfolio right now.
Northrop announced it received an indefinite-delivery/indefinite-quantity (ID/IQ) award from the Air Force that has a potential value of $919 million collectively over 10 year. Northrop will compete to provide mission planning software systems and tools that enable warfighters to plan missions and transfer required data to aircraft avionics.
Unfortunately for Northrop, this announcement was overshadowed by Goldman Sach's announcement that it has added Northrop to its "conviction sell" list today.
Frankly, even with the announcement of this new contract, I agree with the folks at Goldman. Northrop has been in a persistent downtrend since the end of April and is continuing to form lower highs and lower lows. A temporary support level has established itself at $54, but I don't expect this level to hold up for long.
- Janney Montgomery upgraded Microsoft (MSFT) to buy from neutral with a $30 price target, citing valuation and expectations for strong Q4 results.
- UBS upgraded SanDisk (SNDK) to buy from neutral based on favorable pricing and mobile design win momentum. The firm raised its target to $55 from $46.
- BMO Capital upgraded Medtronic (MDT) to outperform from market perform based on valuation and its product pipeline. The firm has a $48 price target on the stock.
- Lorillard (LO) and Qualcomm (QCOM) were upgraded to conviction buy from buy at Goldman.
- Monsanto (MON) was upgraded to buy from hold at Citigroup.
- FedEx (FDX) was upgraded to buy from hold at BB&T.
Early Financial Fireworks Hit the Markets; Will the U.S. Emerge the Leader in the Second Half of Year?
On Wall Street, uncertainty is certainly a buzz killer for the irrationally exuberant. If you need a towel to wipe away the fog, take a look at Your Cheat Sheet to the Psychology of Market Cycles.
While contemplating where we're headed, let's take a look at some data points that indicate the US has the potential to lead the world out of this recession ...
- Bernstein upgraded Corning (GLW) to outperform from market perform based on Gorilla glass prospects and valuation. The firm raised its price target to $22 from $21.
- RBC Capital upgraded Beckman Coulter (BEC) two rating levels to outperform from underperform, citing valuation and customer checks that indicate high retention rates. The firm upped its target for shares to $65 from $55.
- Credit Suisse upgraded Canadian Pacific (CP) to outperform from underperform. The firm expects Canadian Pacific to have stronger-than-average Q2 volume growth, improved productivity and notes leverage to growth in Asia, among other reasons for the upgrade. The firm raised its target to $75 from $59.
- Freeport McMoRan (FRX) was upgraded to overweight from neutral at HSBC.
- Solera (SLH) was upgraded to strong buy from buy at Needham.
- Jefferies upgraded IPC The Hospitalist Co. (IPCM) to buy from hold.
This week, we have another interesting deal: KKR and General Atlantic will buy TASC for $1.65 billion. TASC is the consulting unit of Northrop Grumman (NOC).
Actually, the military giant had little choice but to unload the division because of a conflict of interest. How can you provide unbiased consulting to the U.S. government as well as sell weapons to it?