Brand Name Consumer Company’s Stock Is Too Cheap |
Written by Rob Goldman | ||||||||||||||||
There are three major takeaways from this week’s edition.
WHAT THE PROS ARE DOING THIS WEEKAh, the earnings days. They take me back. Four times a year, for a period of about 3 weeks, analysts look just like the guy in this picture. Admittedly, I think that the Q3 earnings season is the most difficult. While traders are dissecting trading opportunities and trends, (fundamental) industry analysts are listening to quarterly earnings conference call after conference call. Sometimes al team members will be on different calls to take advantage of personnel bandwidth. They pore over reported data and compare them both with their own estimates and Wall Street consensus forecasts. The analysts have to compare revenue growth, margin performance, product/geography breakdown with the year-ago-period, the most recent quarter, and competitors. It is agonizing and that is just the quantitative headache for what has been reported. Then comes the deciphering of management comments in the press releases, conference call, and responses to questions. getting a sense of industry trends, etc. The real pain in the neck is the readjustment of the earnings model not just for the current year, but companies often give a glimpse of updated guidance for the upcoming calendar year. Once all is done, then comes valuation, etc. And getting out an update ASAP. Obviously you are not an analyst and don’t have to go through all this crap. Still, there is something to be learned and used from this exercise.The Stock Market TodayWith the stock market today, it is important to prepare for each earnings report for a given stock in your portfolio as if you were an analyst. Know ahead of time what the Street is expecting vis-à-vis top and bottom line. Read the press release. Follow tweets on Twitter (even though most are useless). Listen in on the call, and be wary of companies that meet or beat expectations but guide lower, whether in an upfront or subtle fashion. Follow bids on Level 2, especially during the conference call. It can save you a fortune and make you money as well, if you are quick and nimble. Last week, we noted two stocks, Consumer Portfolio Services (NASDAQ—CPSS) and VOXX International (NASDAQ—VOXX), we thought could have a good Q and move higher. We were wrong on both counts in terms of stock movement. However, CPSS met expectations and the stock is ridiculously cheap. With that said, this conference call was one for the books. On the one hand, the CEO sound like a buffoon, or a guy you would have a drink with. On the other hand, it is clear that the stock will probably just hang around this current price rage for a while and then, for what will seem to be no reason, will jump 50-70% over a few days. The stock trades 5x earnings, and we are talking over $30M in net income—real money! We call this a Rip van Winkle stock. You buy it, watch it casually, and then hopefully are rewarded for patience not so far down the road. I strongly suggest you read this transcript, which is from the recent call. A link to it is below. It is unusual from the standpoint that management speaks very plainly, not CEO-like. And clearly, there are real fans of the model and the stock. It is more unlike most quarterly calls but is a great window into the quarterly earnings season. http://finance.yahoo.com/news/edited-transcript-cpss-earnings-conference-185613979.html Speaking of earnings season...this week’s earnings season is bound to give the market some volatility but we expect that the current weekly uptrend will hold serve again this week. Clearly, the stock market today is all about earnings, rather than Fed policy or other external factors. But, as we cautioned last week, with revenue growth anemic of late and expected to remain that way, it could spook investors. In our view, that is the biggest risk to stocks this earnings season.Say What?Great info, insights, and hard-hitting stories make up this week’s Say What? feature... The New York Post http://nypost.com/2015/10/17/new-book-dives-into-wall-streets-shady-dealings/ A new book that will become a must-read, whether true or not. Zero Hedge This probably comes as no surprise but is a meaningful story, regardless. CNBC http://www.cnbc.com/2015/10/16/tic-the-most-important-report-youve-never-heard-of.html Real good info and insight here. Bizjournals http://www.bizjournals.com/bizjournals/topic/how-far-your-money-goes Very useful tool... The New York Times There is only one publicly traded comp but it will be interesting to see the appetite of investors... Just the Stats!AAII Sentiment Survey (figures rounded)
Diverging opinion once again. Ticker Sense poll has had a big bullish jump for the 3rd straight week. In fact since the bullish percentage bottomed at 8% on September 21st, the S&P 500 Index is up 3.3%. (It has gone from 8%, to 16%, to 30%, to now 48%, which is higher than the bearish percentage for the first time in weeks). Big earnings reporting week may dampen enthusiasm a bit but the underlying trends remain.
Stock Market Performance
A Great Housing & Construction Play According to a story on CNBC.com, the construction materials sector is expected to report a 50% gain in earnings in Q3. Since the two leaders have already run, how about a brand name consumer stock that benefits from the current housing and new construction boom that trades 10x next year’s earnings despite growth estimates of 25%? Whirlpool (NYSE—WHR—$156.77) is synonymous with appliances. The #1 major appliance manufacturer in the world, Whirlpool generates over $21 billion in annual sales, and many of its products are typically purchased in conjunction with home sales. Despite its healthy 2.3% annual dividend, the stock hasn’t exactly been in favor of late. In fact, WHR trades just 15% above its 52-week low of $140. But as we enter 2016, I am confident that is all about to change. EPS, which has been underwhelming since its recent peak achieved in 2013 is projected to enjoy huge growth in 2016, on the heels of the strong U.S. housing economy. This metric is forecast to jump by 25% to $15.08, up from $12.11 this year and just $11.39 in 2014. Historically, the stock trades 13-15x forward 12-month EPS. Given the Wall Street earnings forecast, I predict that 2016 EPS growth will get the spin cycle going to the tune of a 32% rise to $208, which would still be below its year high of $217, and reflect a run-of-the-mill 13.8x P/E multiple. WHR Q3 financials are due to be released on 10/23/15. Have a great week! 1498 Reisterstown Road, Suite 286 Baltimore Maryland 21208 Phone: 410.609.7100 [email protected] www.goldmanresearch.com Launched in May 2010, The Goldman Guide is a free weekly publication of Goldman Small Cap Research and is written by Founder Rob Goldman with contributions from the GSCR contributor team. This non-sponsored investment newsletter seeks to provide investors with market, economic, political and equity-specific insights via an action-oriented, straight to the point approach. No companies mentioned in this newsletter are current sponsored research clients of the Company or its parent, unless noted, With some exceptions, all companies or investment ideas mentioned in this publication are publicly traded stocks listed either on the NYSE or the NASDAQ. Goldman Small Cap Research members and contributors’ bios, certifications, and experience can be found on our website: www.goldmanresearch.com Disclaimer This newsletter was prepared for informational purposes only. Goldman Small Cap Research, (a division of Two Triangle Consulting Group, LLC) produces non-sponsored and sponsored (paid) investment research. Goldman Small Cap Research is not affiliated in any way with Goldman Sachs & Co. The Firm’s non-sponsored research publications category, Select Research, reflects the Firm’s internally generated stock ideas, along with economic, industry and market outlooks. In virtually all cases, stocks mentioned in Select Research offerings are listed on the NYSE or the NASDAQ. Publications in this category include the weekly newsletter The Goldman Guide, Market Monitor blogs, Special Reports, and premium products such as The 30-30 Report. Goldman Small Cap Research analysts are neither long nor short stocks mentioned in this newsletter. Opportunity Research reports, updates and Microcap Hot Topics articles reflect sponsored (paid) research but can also include non-sponsored microcap research ideas that typically carry greater risks than those stocks covered in Select Research category. It is important to note that while we may track performance separately, we utilize many of the same coverage criteria in determining coverage of all stocks in both research formats. Please view the company’s individual disclosures for each engagement, which can be found in company-specific Opportunity Research reports, updates and articles. Goldman Small Cap Research has not been compensated for any content in this issue. All information contained in this newsletter and in our reports were provided by the companies mentioned via news releases, filings, and their websites or generated from our own due diligence. Economic, market data and charts are provided by a variety of sources and are cited upon publication. Stock performance data and information are derived from Yahoo! Finance and other websites or sources, as noted. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence. The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, other firms, or other financial news outlets. Goldman Small Cap Research relied solely upon information provided by companies through filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research report, update, article, blog, note, or newsletter is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed. This newsletter does not take into account the investment objectives, financial situation, or particular needs of any particular person. This newsletter does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with the FINRA or with any state securities regulatory authority. Statements herein may contain forward-looking statements and are subject to significant risks and uncertainties affecting results. Separate from the factual content of our articles about the company featured in this newsletter, we may from time to time include our own opinions about the companies profiled herein, their businesses, markets and opportunities. Any opinions we may offer about the companies are solely our own, and are made in reliance upon our rights under the First Amendment to the U.S. Constitution, and are provided solely for the general opinionated discussion of our readers. Our opinions should not be considered to be complete, precise, accurate, or current investment advice. Such information and the opinions expressed are subject to change without notice. ALL INFORMATION IN THIS REPORT IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION. For more information, visit our Disclaimer: www.goldmanresearch.com. |