Big dividends from a small retailer

Oct 31, 2006 16:52 UTC

This being Halloween, it seems appropriate to ask, who’s afraid of big, bad Wal-Mart? If you were thinking women’s apparel retailer Cato Corp. (CTR), think again. This microcap has consistently stood its ground.

In todays investment column, I introduced nine good-yielding strip-mall REITs that may benefit from Wal-Mart’s struggles. Cato is another such outfit.

You’d never know it given Cato’s skimpy research coverage; two analysts follow it now, both from small firms, and for most of the past few years, there was only one analyst, Marc Bettinger of Stanford Group Company, who regularly reported on CTR. So it’s not surprising to see low share-price valuation metrics.

Table A
Company Indy. Avg. P/E (TTM) 15.30 21.99 Price/Sales (TTM) 0.86 1.52

Note: TTM = Trailing 12 months

He has a Buy rating on the stock now, as lower gas prices are especially beneficial to this discounter’s largely blue-collar clientele, helping the company post strong results. However his rating has bounced around over time as Cato’s comparable-store sales trends ebbed and flowed and as broader macroeconomic data influenced attitudes toward the spending prowess of low-end consumers.

Another look at Wrigley

Oct 30, 2006 16:48 UTC

It hasn’t been an easy year for Wm. Wrigley Jr. Co. (WWY), given difficulties integrating the June 2005 Life Savers/Altoids acquisition and increased aggressiveness of confectionary rival Cadbury Schweppes Plc (CBRY.L). Both issues appear to have helped take a toll on what had been traditionally high returns on capital. Table A shows how in this area, Wrigley slowed more than an already-lackluster industry.

Table A Trailing 12 month Return on Investment
10/06 10/05 10/04 Return on Invest. WWY 12.76 20.10 23.29 Return on Invest. Indy. 8.34 9.01 9.51

This has cut into the stock’s valuation.

Table B
10/06 10/05 10/04 P/E based on estimated EPS for current fiscal yr. 23.21 28.89 28.71 P/E based on estimated EPS for next fiscal yr. 21.00 25.83 25.78

Last week, though, the stock jumped when Wrigley announced that William Perez, formerly with Nike, would become President and C.E.O. Former leader William Wrigley is staying on as executive chairman.

Weak GDP prompts look at selected income stocks

Oct 27, 2006 16:12 UTC

Thanks in good measure to the housing slump, the economy’s decelerated. That in turn, has lifted hopes in some quarters that the Federal Reserve will reduce interest rates down the road or at least, will be hesitant to raise them. Either scenario, but especially the first, could provide a nice boost to income stocks.

Below, we’ve listed the top ten income stocks, as defined by our Reuters Select stock screens. The stocks included have yields above 3 percent. To identify top stocks, we sort the overall list based primarily on the recent performance of the screen(s) in which the stocks appear and also on relevant data measures; sentiment gauges and company fundamentals, including, for income stocks, dividend growth characteristics. (Click here for a more detailed explanation of how we rank the stocks.) Top-ranked Reuters Select income stocks Company Screen(s) Yield Telecomunicacoes de Sao Paulo (TSP) Return On Investment,
Lesser Known Stocks 10.99 Telecommunications services in the State of Sao Paulo, Brazil. Thornburg Mortgage (TMA) Sales Growth Leaders 10.44 Single-family residential mortgage lender that originates, acquires and retains investments in adjustable and variable rate mortgage assets. Northstar Realty Finance (NRF) Sales Growth Leaders Relative Values 9.60 A real estate finance company that makes investments in real estate debt, real estate securities and net lease properties. B&G Foods (BGF) Sales Growth Leaders Lesser Known Stocks 8.98 Shelf-stable foods including pickles, peppers, jams, jellies and fruit spreads, canned meats and beans, spices, seasonings, marinades, hot sauces, wine vinegar, maple syrup, salad dressings, Mexican-style sauces, taco shells and kits, salsas and other specialty food products under the brands, such as Ortega, Maple Grove Farms of Vermont, Bloch & Guggenheimer, Polaner, Emeril’s, Las Palmas, Underwood, B&M, Ac’cent, Trappey’s, Regina, Joan of Arc, Grandma’s, Wright’s, Sa-s on, Brer Rabbit and Vermont Maid. Newcastle Investment Corp. (NCT) Sales Growth Leaders Favored Value Plays Consensus Choices 8.69 A real estate investment and finance company. Atlas Pipeline Partners (APL) Income Stocks Lesser Known Stocks 7.20 Provides midstream energy services through the transmission, gathering and processing of natural gas in the Appalachian and Mid-Continent areas of the United States, specifically Pennsylvania, Ohio, New York, Oklahoma, Texas, Arkansas and Missouri. First Commonwealth Financial (FCF) Lesser Known Stocks 5.03 A bank holding company that operates the First Commonwealth Bank (FCB). FCB conducts business through 100 community banking offices in the Pennsylvania counties of Allegheny, Armstrong, Beaver, Bedford, Blair, Butler, Cambria, Centre, Clearfield, Elk, Indiana, Jefferson, Lawrence, Somerset, Washington and Westmoreland. Genesis Energy (GEL) Accelerating EPS Growth Lesser Known Stocks 4.73 A midstream energy partnership primarily engaged in the pipeline transportation of crude oil and, to a lesser extent, natural gas and carbon dioxide (CO(2)) in the Gulf Coast region of the United Sates. Unilever plc (UL) Relative Growth Return On Investment Lesser Known Stocks 4.45 Supplier of consumer goods across foods, home and personal product categories: Foods, and Home and Personal Care; brands include Dove, Lux, Axe, Rexona and Sunsilk. NSTAR (NST) Relative Growth Lesser Known Stocks 3.40 Retail utility operations: Boston Edison Company (Boston Edison), Commonwealth Electric Company (ComElectric), Cambridge Electric Light Company (Cambridge Electric) and NSTAR Gas Company (NSTAR Gas). Also wholesales electricity and has non-utility, unregulated operations including district energy operations (Advanced Energy Systems, Inc.), telecommunications operations (NSTAR Communications, Inc. (NSTAR Com)) and a liquefied natural gas (LNG) service company (Hopkinton LNG Corp.).

Madonna stirs the pot anew

Oct 27, 2006 15:45 UTC

madonna1.jpgThe queen of controversy has done it again.

Earlier this month pop superstar Madonna, following a lead of other Hollywood stars, sought to adopt a young boy from a poor African country. Since then a battle has raged about the legality of the move, the morality of it, the motive behind the adoption of the tot from Malawi and whether the father of the boy understood the adoption process. Madonna this week went on “The Oprah Winfrey Show” to talk about the decision. The entertainer said on the show that she worries that the furor will discourage adoptions.

Some in the Chicago press deemed the Oprah appearance a success. The singer was “calm and resolute” as she “condemned the news media,” said the Chicago Tribune. Columnist Mary Mitchell, in the rival Sun Times, finds it hard to applaud Madonna but can’t condemn the adoption decision, either. “The fear of creating a new Black Diaspora is driving the Madonna furor,” Mitchell concludes.

In London, Madonna’s current home, the Guardian declared the singer “looked at times close to tears as she defended her actions.”

Ten new ideas

Oct 27, 2006 15:24 UTC

The number of stocks that are new to Reuters Select is larger than usual at 252,  twice as many as we typically see added to our 19 stocks screens. Whatever one may want to say about earnings season in general, it seems that core fundamentals and market sentiment, the main factors that drive our screens, seem to be on the rise, at least for now.

Here are this week’s top-ten newcomers based on today’s screen listings, compared with the list we compiled a week ago. (Click here for an explanation of how we rank the stocks on the overall list. The 19 screens, as a whole, have appreciated nearly 315 percent since we began tracking data on Jan. 28, 2000.) Top-ranked Reuters Select newcomers Company Screen(s) Market
Cap. ($ mill.)
Cooper Industries (CBE) Accelerating EPS Growth,
Rising Expectations 8,384.80 Electrical Products segment manufactures, markets and sells electrical and circuit protection products. Tools segment manufactures, markets and sells hand tools, automated assembly systems, and electric and pneumatic industrial power tools. Capital One Financial (COF) Favored Value Plays,
Consensus Choices 25,179.97 State-chartered bank that offers credit card products and deposit products; federally chartered savings bank that offers consumer and commercial lending and consumer deposit products; automobile and other motor vehicle financing products. Cognizant Technology Solutions (CTSH) Relative Momentum,
Rising Expectations,
High P/E Ratios 11,184.71 Technology strategy consulting, complex systems development, enterprise software package implementation and maintenance, data warehousing and business intelligence, application testing, application maintenance, infrastructure management and vertically oriented business process outsourcing (BPO). First Advantage (FADV) Sales Growth Leaders,
Favored Value Plays 1,261.88 Transportation credit reporting, motor vehicle record reporting, criminal records reselling, consumer credit reporting and lead generation services. Harris Corp. (HRS) Rising Expectations 5,899.99 Assured communications products, systems and services for government and commercial customers. Its operating divisions serve markets for government communications, secure tactical radios, microwave communications and broadcast communications and systems. Intergraph Corp. (INGR) Favored Value Plays 1,279.18 Spatial information management software that enables businesses and governments to organize vast amounts of complex data into understandable visual representations. Novartis AG (NVS) Relative Values,
Lesser Known Stocks 142,753.98 Prescription medicines; generic prescription drugs, animal health, medical nutrition, Gerber and CIBA Vision. Polo Ralph Lauren (RL) Accelerating EPS Growth,
Favored Value Plays 7,504.43 Apparel; accessories; products for the home (e.g. bedding and bath products, furniture, fabric and wallpaper, paints, broadloom, tabletop and giftware); and fragrance. United Technologies (UTX) Favored Value Plays Relative Values 65,478.18 Elevators, escalators and moving walkways and services; heating, ventilating and air conditioning systems and equipment; electronic security, fire detection and suppression and security personnel services; Commercial, general aviation and military aircraft engines, parts and services; industrial gas turbines and space propulsion; commercial and military helicopters. Waters Corporation (WAT) Accelerating EPS Growth,
Rising Expectations 5,085.52 Liquid chromatography and mass spectrometry instrument systems and support products; thermal analysis and rheometry instruments used to predict suitability of polymers and viscous liquids for various industrial, consumer goods and healthcare products.

Thank goodness it’s insurance

Oct 26, 2006 18:13 UTC

It’s a good thing Aetna Inc. (AET) doesn’t sell women’s apparel.

Its shares are flying high, up nearly 7 percent as of this writing, in response to a strong third-quarter profit. Commercial medical cost containment improved sharply with previously-seen upticks now being characterized by CEO Ron Williams as “an aberration rather than an enduring trend.” J. Paul Newsome of A.G. Edwards, reiterated his “Buy for Aggressive Investors” rating in a report headlined “Finally, Aetna shows its skills: MCR (medical cost ratio) improves to 78.8% vs. prior year 79%.”

In another part of its report, Aetna lowered membership growth guidance. The company now expects 650,000 new members in 2006, down from a prior 900,000-1 million expectation. Williams attributed this to pricing discipline, and Newsome calmly accepted it: “while again disappointing, (it) was at least expected.”

Boeing’s unpopular R&D

Oct 25, 2006 15:54 UTC

When one of two companies in what is essentially a duopoly is in crisis, you’d think Wall Street would look kindly upon the healthy one. But the uneven performance of Boeing Co. (BA) stock this year, despite the problems at rival Airbus, a division of European Aeronautic Defense and Space Company NV (EAD.PA), says otherwise. 

As we approach mid-day trading, Boeing is down about 3 percent. The company beat expectations in the third quarter, mainly on lower corporate-level expenses. Regarding the core business, investors were disappointed by an increase in planned research & development expenditures. David Strauss of UBS Investment Research told clients, that “2006/07 R&D has now increased by over $1B or nearly 20% since its original forecast . . . . ”

One might expect Boeing to benefit from stepped-up expenditures on the large 747-800 and mid-sized 787 jets, both of which are expected to gain market share. As to mid-size planes, Joseph Campbell said in a Lehman Brothers research report that Boeing could wind up with an 80 percent share of this market segment, up from a previously-expected even split between the two manufacturers. Meanwhile, Boeing is starting work on a replacement for its old 737 workhorse.

Getting Paid From the Grave

Oct 25, 2006 12:33 UTC

Albert Einstein StampWant to leave a bundle to your family, not to mention your attorneys? Here’s the key: Become very smart or talented or both; write, record or think up an idea and make lots of money off it. Don’t forget to have your picture taken. And be sure to die.

Forbes’ list of top-earning deceased celebrities is crammed with household names, but what most have in common is that their faces are plastered on everything from t-shirts to coffee mugs.

Sure, all of them were famous while living, but postmortem royalties can be a wonderful thing.

Connecting the auto dots

Oct 24, 2006 16:54 UTC

It looks like connecting the dots is not part of the Wall Street skill set.

Yesterday, Ford Motor Co. (F) reported a horrible quarter that clarifies a situation that Argus Research analyst Kevin Tynan described as going beyond a need for shrinkage. He said, “Ford needs to become a company flexible enough to be profitable at lower production volumes on each line (and) on each platform.” Translation: It needs to really transform its manufacturing process.

Goldman Sachs gets it. As other analysts cut ratings, it upgraded Ford from Sell to Neutral stating that restructuring would trump fundamentals.

A connect-the-dots investor might look for companies that stand to benefit from efforts on the part of Ford to improve its factory operations, and might come across an outfit like Rockwell Automation Inc. (ROK), whose whole business is based on helping factories run more efficiently.

IBM sues Amazon; Wall Street snores

Oct 24, 2006 15:42 UTC

Politicians seem to care deeply about China’s respect for intellectual property, and media giants remain antsy about upstart web sites. Interestingly, though, when a big-name U.S. corporation is formally accused of basing a substantial portion of its business model on patent infringement, nobody, at least nobody on Wall Street, seems to care.

What else are we to assume when (AMZN) stock is up 1.4 percent near mid-session the day after International Business Machines Corp. (IBM) filed suit accusing it of violating patents. And it’s not as if Big Blue is talking about buried little things nobody ever notices. IBM spokesman Scott Brooks told Reuters that “Amazon’s entire business model is built upon these patents and that damages could be substantial” and that IBM first called Amazon’s attention to these issues more than four years ago.

Perhaps, Wall Street’s calmness reflects Research In Motion Ltd.’s (RIMM) having survived a patent challenge that for a while looked like it might actually threaten continuation of the Blackberry product line. After all was said and done, money talked: Research In Motion agreed to a license fee and is now getting on with its life. That’s a viable precedent since Brooks didn’t talk in terms of cease-and-desist but acknowledged, right from the outset, that IBM is seeking a licensing deal from Amazon.