Portfolio Review


Upgrades & downgrades

We are adding BlackRock ($236; BLK) to the Focus List. Shares of the investment manager appear reasonably valued at 17 times trailing earnings, 21% below their five-year average. Analyst estimates have risen over the last 60 days, with the consensus calling for earnings per share of $3.48 in the March quarter, implying 10% growth, and $15.51 for the full year, good for 13% growth. Even if the P/E holds at its current level, should BlackRock meet 2013 profit estimate, the shares will climb 13% in the next year. Earning an Overall rank of 94, BlackRock is also a Buy and a Long-Term Buy.

B/E Aerospace ($52; BEAV) was added to the Focus List and Buy List. Check out our review in Analysts' Choice.

Since announcing lighter-than-expected sales for the December quarter, shares of CF Industries ($195; CF) have dipped 11%. The maker of fertilizer blamed much of the shortfall on a change in the way it accounts for sales from a partially owned supplier and reported adjusted sales that slightly topped estimates. But the disappointing revenue, coupled with a lack of profit guidance for the year ahead, could continue to weigh on the shares. We still like CF's year-ahead potential — the consensus projects a per-share-profit decline of 8%, which doesn't seem to fully reflect low fertilizer inventories and the company's expectation of a strong planting season. But given the uncertainty, CF is no longer one of our very favorite stocks. CF is being dropped from the Focus List but remains a Buy and a Long-Term Buy.

UnitedHealth Group ($53; UNH) is being removed from the Buy and Focus lists but remains a Long-Term Buy. Its Quadrix Overall score has slipped to 80, and three of its six category ranks have fallen below 50. Shares have slumped 9% from early-February highs, hurt by unexpectedly low preliminary reimbursement rates for Medicare Advantage. The pullback leaves shares looking cheap at just 10 times trailing earnings, but the stock appears to lack a catalyst that can drive near-term gains. UnitedHealth still seems capable of delivering decent operating results and solid total returns in the next few years, but the stock no longer ranks among our best ideas for 12-month gains.

Earnings reviews

Mylan ($28; MYL) grew December-quarter earnings per share 23% to $0.65 excluding special items, easing past the consensus by a penny. Revenue advanced 12% to $1.72 billion. For 2013, Mylan projects per-share profits of $2.75 to $2.95; the midpoint of that range implies 10% growth and exceeds the consensus of $2.80. Management expects revenue growth of 4% to 10% for the year. Mylan also agreed to pay $1.6 billion cash for Agila Specialities, an Indian maker of generic injectable drugs. Mylan is a Focus List Buy and a Long-Term Buy.

Wal-Mart Stores ($71; WMT) earned $1.67 per share from continuing operations in the January quarter, up 11% and $0.10 above the consensus. A lower tax rate contributed to profit growth, as did a 4% increase in total revenue to $127.92 billion. Excluding fuel, same-store sales rose 1.0% at Walmart U.S. and 2.3% at Sam's Club. For the April quarter, Wal-Mart sees per-share profits of $1.11 to $1.16, implying growth of 2% to 6%; the consensus was $1.18. The retail giant also raised its quarterly dividend 18% to $0.47 per share, payable April 1. Wal-Mart is a Long-Term Buy.

Energy update

A judge in Brazil dismissed criminal charges against Chevron ($115; CVX), Transocean ($51; RIG), and 17 individuals stemming from a 2011 oil spill. Prosecutors there continue to seek $20 billion in damages in two civil cases. Separately, Chevron agreed to pay up to $349 million for a stake in a project that will search for shale gas in Australia. Chevron is a Buy and a Long-Term Buy.

Exxon Mobil ($89; XOM) won approval from Canada to complete its $2.64 billion acquisition of Celtic Exploration ($26; CEXJF). Exxon also lifted a force majeure on a Nigerian pipeline that had been declared on Feb. 7. Force majeure refers to unforeseeable circumstances that prevent the fulfilling of a contract; Exxon declared force majeure because it needed to repair the pipeline. Exxon Mobil is a Buy and a Long-Term Buy.

Tech/telecom roundup

Intel ($21; INTC) agreed to manufacture programmable semiconductors for Altera ($36; ALTR), a move that helps explain Intel's commitment to heavy investment in new facilities. Intel has reportedly signed a separate agreement with Cisco Systems ($21; CSCO) to make processors. Over the past few years, Intel has begun to fabricate semiconductors for small start-up companies. Analysts have suggested Intel could ultimately become a foundry for Apple ($449; AAPL), which may be moving away from current supplier Samsung Electronics ($1,500; SSNLF). Intel is a Long-Term Buy. Cisco is a Buy and a Long-Term Buy. Altera is rated C (below average).

Google ($790; GOOG) launched Chromebook Pixel, a touch-screen laptop computer that runs on its Chrome operating system. The computer, powered by Intel semiconductors and built by companies including Samsung, carries a price tag of $1,299 for the Wi-Fi model or $1,449 for a version that connects to Verizon's Wireless's network. In the past, Google has sold Chromebooks made by Samsung and Acer and priced below $250. Unlike the Android operating system, Google's popular platform for smartphones and tablets, Chrome will primarily run web-based applications rather than software kept on the device. Google is a Focus List Buy and a Long-Term Buy.

Hewlett-Packard ($20; HPQ) announced it will make an Android tablet, scheduled to go on sale in April for $169. H-P, a long-time partner of Microsoft ($27; MSFT), said it could eventually introduce a Windows-based tablet. But the move illustrates Microsoft's struggles to gain a foothold in the mobile market and the possibility that it alienated personal-computer makers with the introduction of its Surface tablets. Microsoft is a Long-Term Buy. H-P is rated C (below average).

DirecTV ($48; DTV) may try to sweeten its $7.6 billion offer for GVT, a Brazilian telecommunication business owned by Vivendi ($21; VIVHY), by offering a share swap. Vivendi says it will postpone the sale of GVT unless it receives a compelling price, reportedly more than $9 billion. Final bids are expected by mid-March. DirecTV is a Focus List Buy and a Long-Term Buy.

Rank Changes

B/E Aerospace ($52; BEAV) is being added to the Focus List and Buy List. BlackRock ($236; BLK) is being added to the Focus List. CF Industries ($195; CF) is being dropped from the Focus List but remains a Buy and a Long-Term Buy. UnitedHealth Group ($53; UNH) is being dropped from the Focus List and Buy List but remains a Long-Term Buy.

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