Portfolio Review

3/11/2013


Technology review

Qualcomm ($68; QCOM) hiked its quarterly dividend 40% to $0.35 per share, payable after March 27. Entering 2013, Qualcomm had grown the dividend at an annualized rate of 12% over the past five years. The company also announced a $5 billion stock-repurchase program, enough to lower the share count by 4% at current prices. Qualcomm is a Focus List Buy and a Long-Term Buy.


At an analyst conference Google ($839; GOOG) CFO Patrick Pichette said, "We don't have religion about cash and hoarding cash," echoing comments made by Tim Cook when he took over as CEO of Apple ($431; AAPL). For now, Pichette added, Google will keep its $48.09 billion of cash so it's ready to "pounce" on strategic investments. In other news, German lawmakers voted in favor of Google, allowing news aggregators to show "single words or very small text excerpts" of news stories on their websites without paying publishers a licensing fee. Both Apple and Google are rated Focus List Buy and Long-Term Buy.


The European Union fined Microsoft ($28; MSFT) $731 million for failing to comply with an antitrust pact concerning its Internet browser. From February 2011 to July 2012, some versions of the Windows operating system omitted a screen that allows users to select a default web browser. Microsoft blamed the violation on a technical glitch.

Separately, Microsoft agreed to sell its online advertising platform, Atlas Advertiser Suite, to Facebook ($28; FB) for an undisclosed amount. Microsoft inherited Atlas with its 2007 purchase of aQuantive for $6.3 billion. The move highlights Facebook's intent to overtake Google as the U.S. leader for online display ads, a $15 billion market. According to researcher eMarketer, Google controls 15.4% of the market, versus 14.4% for Facebook. Microsoft is a Long-Term Buy.


Intel ($22; INTC) plans to invest $152 million in Brazil for research and development over the next five years. Intel plans to spend about $13 billion this year on capital projects, up 18%. Intel is a Long-Term Buy.


Citing the rise of tablets and "underwhelming reception to Windows 8," industry researcher IDC cut its 2013 outlook for personal-computer shipments to a 1.3% decline, versus a prior forecast of 2.8% growth.

Magna rallies on strong results

Magna International ($55; MGA) shares rose nearly 4% in the two days after the auto-parts maker said earnings per share rose 13% to $1.49 in the December quarter, well ahead of the consensus of $1.14. Revenue grew 11% to $8.03 billion, also topping the consensus estimate, as a 12% year-over-year surge in North American vehicle production overcame an 8% decline in Western Europe. Magna raised its 2013 guidance, which now calls for sales to rise 4% to 8%, driven by growth in Europe, Asia, and South America. Magna also raised its quarterly dividend 16% to $0.32 per share, payable March 27. Magna is a Focus List Buy and a Long-Term Buy.

Energy giants gear up for projects

Exxon Mobil ($90; XOM) said its production will drop by 1% this year, before averaging annual growth of 2% to 3% through 2017. The company targets about $38 billion in annual capital expenditures over the next several years, down from $39.8 billion spent on capital projects in 2012. Exploration and production tends to account for roughly 90% of Exxon's capital spending. Exxon Mobil is a Buy and a Long-Term Buy.


Brazil's oil regulator does not expect ongoing civil lawsuits to deter Chevron ($118; CVX) from bidding on new oil and natural-gas blocks in a series of auctions this year, the first scheduled for May. In November, a court lifted the drilling ban imposed on Chevron after a small oil spill off the country's coast in November 2011. Chevron plans to resume production in the field where the leak occurred, though the field will not contribute materially to 2013 production. Chevron is a Buy and a Long-Term Buy.

Corporate roundup

Celgene ($108; CELG) updated investors on the latest results for Apremilast, an experimental pill to treat psoriasis. A late-stage study found 33% of patients experienced a 75% reduction in the autoimmune skin disease, versus 41% of patients in an earlier trial. Apremilast appears less effective than existing treatments, but causes fewer harmful side effects. Rival drugs include Enbrel, made by Pfizer ($28; PFE) and Amgen ($93; AMGN), and Humira, made by AbbVie ($38; ABBV). Celgene plans to apply for U.S. regulatory approval in the first half of the year. Celgene, which produced $5.51 billion in sales last year, sees the drug eventually generating $1 billion in annual revenue. Celgene is a Buy and a Long-Term Buy. Amgen is rated A (above average). AbbVie is rated B (average). Pfizer is rated C (below average).


Wal-Mart Stores ($74; WMT) is struggling to restock shelves in its U.S. stores, according to Bloomberg, which obtained the minutes of an executive meeting. Replenishment problems could be part of the reason Wal-Mart said it expects flat same-store sales in the April quarter. However, the retail giant said the news was based on one person's notes rather than official meeting minutes, and stories about the issue contain "misinterpretations and misleading statements." Wal-Mart is a Long-Term Buy.

Financial update

J.P. Morgan Chase ($49; JPM) shares have rallied 13% so far this year, ahead of the 9% gain for S&P 500 Financial Sector Index. With results of the Federal Reserve's stress tests due out this month (phase one set for release March 7, phase two March 14), J.P. Morgan continues to tout the strength of its balance sheet. The financial titan says it has no plans to make acquisitions while adapting to the new banking regulations, but did hint that it could pay a special dividend.

Management added that it has asked permission from U.S. regulators to raise its quarterly dividend. It still plans to repurchase $3 billion worth of shares in the March quarter, roughly 2% of outstanding shares at the current price, though full-year repurchases could be 20% lower than in 2012. The bank scores at least 90 in four of six Quadrix® categories, earning an Overall rank of 98. J.P. Morgan Chase is a Focus List Buy and a Long-Term Buy.


The CEOs of BB&T ($30; BBT) and U.S. Bancorp ($34; USB) said lending has slowed in the March quarter. BB&T CEO Kelly King described the market as "very skittish" but sees loan growth rising 2% to 4% in the June quarter from the current quarter. U.S. Bancorp sees March-quarter loan growth toward the low end of its forecast of 1% to 1.5%. BB&T is a Long-Term Buy. U.S. Bancorp is a Buy and a Long-Term Buy.


Rank Changes

No changes were made this week in Dow Theory Forecasts.


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