Portfolio Review

7/25/2011


Ameriprise downgraded

Demonstrating how quickly things can change on Wall Street, Ameriprise Financial ($53; AMP) looks less appealing today than it did just a couple weeks ago. The shares have fallen 8% since July 8, dragged down by worrisome economic developments and bad news about rivals in advance of Ameriprise’s expected July 27 earnings release. The 2011 consensus profit estimate has fallen $0.06 per share over the last week, and the stock’s Quadrix Earnings Estimates score has fallen to 7, contributing to a decline in the Overall score to 79.

Ameriprise’s recent regulatory compliance issues suggest that a negative profit surprise is possible, and BlackRock ($184; BLK) looks like a better choice in the asset-management group. Ameriprise is being dropped from the Buy List and Long-Term Buy List and dropped from coverage. BlackRock is a Buy and a Long-Term Buy.

TV stocks put on a good show

Shares of our recommended pay-TV companies — Comcast ($24; CMCSa), DirecTV ($53; DTV), and DISH Network ($31; DISH) — and have soared this year, with DISH hitting a three-year high and DirecTV an all-time high this month. All three grew free cash flow at least 17% last year and show a propensity for returning much of that cash to investors. Comcast has raised its quarterly dividend by at least 18% in each of the past two years, while both DISH and DirecTV are aggressively repurchasing shares. DirecTV plans to buy back one-third of its outstanding shares by 2013.

The rise in pay-TV stocks has come despite the threat of Internet-streaming services, such as those offered by Amazon.com ($218; AMZN), Google ($603; GOOG), and Apple ($377; AAPL). While some consumer surveys suggest that 10% of U.S. households could cancel their cable or satellite TV over the next year in favor of online options, it’s too early to panic. Few of the streaming services, adopted by just 2% of U.S. households, feature a live-TV component. Of course, if Apple comes through with a rumored high-definition TV that lets customers purchase individual shows or channels, the threat becomes more serious.  Apple and DirecTV are rated Focus List Buy and Long-Term Buy. DISH Network is a Buy and a Long-Term Buy. Comcast is a Long-Term Buy. Amazon.com is rated C (below average). Google is rated B (average).

June-quarter earnings

Altera ($44; ALTR) said June-quarter per-share profits climbed 12% to $0.65 per share, a penny above Wall Street’s projection, on 17% revenue growth. Altera issued September-quarter revenue guidance exceeding the consensus at the time of the announcement. The company also hiked its quarterly dividend 33% to $0.08 per share, payable Sept. 1. The shares fell on the news, probably because gross profit margins lagged the consensus and the company projected September-quarter gross margins a bit lower than Wall Street expectations. Altera is a Focus List Buy and a Long-Term Buy.


CSX ($25; CSX) reported 28% growth in earnings per share to $0.46, $0.02 above the consensus. Revenue grew 13% on growth in all three business segments. CSX also raised its target for capital investments by 10% to $2.2 billion. CSX is a Focus List Buy and Long-Term Buy.


In the June quarter, Intel ($23; INTC) earned $0.59 per share excluding special items, up 16% and $0.08 above the consensus. Revenue advanced 22% to $13.03 billion, also ahead of the consensus. For the September quarter, Intel expects revenue of $13.5 billion to $14.5 billion, topping the consensus of $13.48 billion. Intel is a Buy and a Long-Term Buy.


BlackRock ($184; BLK) grew June-quarter profits 27% to $3.00 per share excluding special items, topping the consensus by a dime. Revenue climbed 16% to $2.35 billion, and assets under management rose at the same rate, reaching $3.66 trillion. Net inflows for long-term products totaled $18.4 billion despite investors’ worries about geopolitical and economic conditions. BlackRock is a Buy and a Long-Term Buy.


In the June quarter, J.P. Morgan Chase ($40; JPM) grew per-share earnings 17% to $1.27, topping the consensus by $0.06. Revenue rose 7% on growth from all units except card services. J.P. Morgan also said it plans to sell up to 15% of its mortgage assets every year until it unwinds the $154 billion portfolio. J.P. Morgan Chase is a Buy and a Long-Term Buy.


Stryker’s ($59; SYK) per-share profits rose 13% to $0.90 per share excluding acquisition-related charges, matching the June-quarter consensus. Revenue jumped 16% to $2.05 billion on growth across all three business units. Stryker is a Long-Term Buy.


Abbott Laboratories ($53; ABT) earned $1.12 per share excluding special items in the June quarter, up 11%, and a penny above the consensus. Sales advanced 9%. The company raised its full-year guidance for per-share profits to $4.58 to $4.68, versus the $4.60 consensus. Abbott is a Long-Term Buy.


St. Jude Medical’s ($36; STJ) June-quarter earnings per share climbed 8% to $0.85 excluding special charges, exceeding Wall Street’s target by $0.01. Powered by 23% growth in international markets, revenue increased 10%. However, St. Jude lowered its full-year profit guidance, citing weakness in the U.S. cardiac-rhythm-management business (implantable defibrillators and pacemakers) and regulatory delays for a key new product. St. Jude Medical is a Long-Term Buy.

Mergers and deals

NASDAQ OMX Group ($23; NDAQ) will reportedly visit the London Stock Exchange’s board and major shareholders to explore a friendly merger. A separate report said the LSE would consider such a deal, though an analyst who had recently met with NASDAQ officials said the company seemed more focused on share repurchases and its current bid for the clearinghouse LCH.Clearnet than on a larger takeover. NASDAQ is a Buy and a Long-Term Buy.


A hedge fund holding a 1.5% stake in Walter Energy ($121; WLT) urged the coal miner to put itself up for sale. The fund argued that based on the value assigned to an Australian miner in a merger earlier this month, Walter’s stock could be worth $240 per share. Walter is a Focus List Buy.

News digest

ConocoPhillips ($75; COP) announced that it will spin off its refining unit into a separate publicly traded company. ConocoPhillips is rated A (above average).


Two top executives at News Corp. ($16; NWSa) resigned and British lawmakers grilled CEO Rupert Murdoch over a phone-hacking scandal. The U.S. has launched its own probe into the allegations. While the scandal should have little effect on News Corp.’s operating results, bad news could continue to weigh on the stock. News Corp. is rated B (average).


Newmont Mining ($58; NEM) plans to take a charge of $120 million to $160 million in the June quarter after losing an appeal in a royalties dispute. Set to report its quarterly results July 29, Newmont is a Buy and a Long-Term Buy.

Rank Changes

Ameriprise Financial ($53; AMP) is being dropped from the Buy List and Long-Term Buy List. Our recommended bond-fund position rises to 12.9% for the Buy List and 11.8% for the Long-Term Buy List.


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