Portfolio Review: February 22, 2016
Two new stocks
Amerco ($344; UHAL) joins the Buy and Long-Term Buy lists. North America's largest do-it-yourself moving and storage operator, Amerco is best known for its U-Haul brand. The stock represents a play on the U.S. economy, with results likely benefiting from increased household formation and an uptick in people moving as confidence in the job market improves. Amerco generates the bulk of its revenue from self-moving equipment rentals and storage units. Insurance — life and property & casualty — accounts for about 8% of sales.
The stock scores above 60 for five of six Quadrix category scores, contributing to an Overall rank of 95. Amerco enjoys steady sales growth, up at least 5% in 12 straight quarters, and surging operating cash flow, up 68% over the past 12 months. Yet Amerco also carries some risk. The self-storage business has a low barrier to entry, and Amerco has seen competition invading the market. Moreover, its balance sheet is highly leveraged, with about 35% of its debt coming due by 2017. At 14 times trailing earnings, Amerco trades 19% below the median stock in the S&P 1500 industrial sector and 4% below its three-year average.
Biogen Idec ($266; BIIB) is being upgraded to the Long-Term Buy List. The stock, down 16% so far in 2016, has gotten swept up in the biotechnology rout. That slump leaves Biogen looking unduly cheap, given its operating momentum and growth prospects. The trailing P/E ratio is less than 16, near its lowest point since 2011. Biogen grew per-share profits 26%, sales 11%, and cash from operations 26% in 2015. Three drugs for multiple sclerosis generated 89% of Biogen's revenue last year.
The product pipeline brims with potential drugs that treat Alzheimer's disease and nerve damage caused by multiple sclerosis. Management says per-share profits should rise 8% to 9% this year on revenue growth of 3% to 5%. Biogen could top estimates if it succeeds in raising prices for its multiple sclerosis drugs. The stock earns an Overall score of 95. Biogen Idec was previously rated A (above average).
In the January quarter, Nvidia ($28; NVDA) grew per-share profits 21% to $0.52 excluding special items, topping the consensus estimate of $0.32. Sales, up 12% to $1.40 billion, also topped analyst expectations. For the April quarter, Nvidia says revenue should grow 10% to $1.26 billion, ahead of the consensus at the time of the announcement. Management expects to return $1.0 billion to shareholders through dividends and share repurchases in fiscal 2017 ending January, up from $800 million last year. Nvidia is a Long-Term Buy.
Shire ($169; SHPG) said December-quarter earnings per share rose 13% to $2.97 excluding special items, topping the consensus by $0.11. Revenue increased 9% to $1.72 billion, benefiting from both price hikes and higher volumes. Shire also raised its first-half dividend 16% to $0.66 per share, payable April 12. Shire pays two dividends a year; the June-quarter payout is typically four to five times larger than the one it pays later.
Management expects 2016 per-share profits to climb 7% to 10% on double-digit sales growth. This guidance excludes any effects from Shire's pending $32 billion acquisition of Baxalta ($40; BXLT), expected to close in the middle of the year. Management says it will take a break from its aggressive acquisition activity following the Baxalta deal. Aside from Baxalta, Shire has completed three deals worth a total of at least $15.3 billion in the past two years. Shire is a Long-Term Buy.
Alphabet ($732; GOOGL) is reportedly developing a virtual-reality headset not tethered to a smartphone or personal computer. Later this year, Facebook ($105; FB), Sony ($22; SNE), and HTC plan to release their own virtual-reality headsets, all running off a PC or video-game console. Separately, a U.K. court ruled that Alphabet's Google did not abuse its market position with its mapping software. Tiny, U.K.-based rival Streetmap EU had claimed Google's search results favored its own mapping product.
In other legal matters, Google acquiesced to pressure from the European Union to expand how it enforces the 2014 right-to-be-forgotten rule on its search engines. Google says it has received nearly 400,000 requests to remove links containing information. Alphabet is a Focus List Buy and a Long-Term Buy. Facebook is a B (average).
Apple ($98; AAPL) launched mobile-payment service Apple Pay on Feb. 18 in China; the service has experienced mixed success in the other four countries where it operates. Separately, Apple is developing its first television series, a six-episode show called Vital Signs that will be available on Apple Music.
In other news, Apple reportedly plans to issue $12 billion of debt, adding to the $53.20 billion in long-term debt that it had outstanding at the end of December. About 93% of Apple's $215.7 billion in cash and marketable securities resides outside of the U.S. Finally, shares of Apple, Jabil Circuit ($20; JBL), and Skyworks Solutions ($64; SWKS) rallied on an analyst report that iPhone suppliers experienced unexpectedly solid sales in January. Both Apple and Jabil are rated Focus List Buy and Long-Term Buy. Skyworks is a Buy and a Long-Term Buy.
Lear ($106; LEA) hiked its quarterly dividend 20% to $0.30 per share, payable March 23. The company has now grown its dividend at an annualized rate of 19% over the past five years. Lear also increased its stock-repurchase plan to $1 billion, equating to 13% of shares at their current price. About $513 million remained on Lear's prior buyback program at the end of 2015. Lear repurchased 5% of its shares last year and 34% of its shares since beginning its buyback program in 2011. Lear is a Focus List Buy and a Long-Term Buy.
Comcast's ($58; CMCSa) NBCUniversal unit plans in March to launch Hayu, a service that lets subscribers stream reality-TV shows. Comcast is a Focus List Buy and a Long-Term Buy.
Kroger ($39; KR) is reportedly one of several companies preparing bids to acquire specialty retailer Fresh Market ($23; TFM). With 183 stores in 27 states, Fresh Market has a stock-market value of $1.13 billion. Kroger completed three midsized acquisitions in the past two years, paying a combined $3.5 billion for Harris Teeter, Vitacost.com, and Roundy's. Kroger is a Buy and a Long-Term Buy.
J.P. Morgan Chase ($59; JPM) CEO Jamie Dimon injected new life into the bank's listless shares by purchasing 500,000 shares of stock for about $26.6 million. Prior to the announcement, J.P. Morgan shares had slumped 20% in 2016. J.P. Morgan is a Long-Term Buy.
Amerco ($344; UHAL) is being initiated as a Buy and a Long-Term Buy. Biogen Idec ($266; BIIB) is being added to the Long-Term Buy List. Vanguard Short-Term Corporate Bond ($79; VCSH) ETF now accounts for 18.1% of the Buy List and 21.2% of the Long-Term Buy List.