Portfolio Review


Buy Ameriprise

We are initiating coverage of Ameriprise Financial ($51; AMP) as a Buy and a Long-Term Buy. A leader in financial planning, Ameriprise controls more than $600 billion in owned, managed, or administered assets. The $1 billion acquisition of Columbia Management’s asset-management business in May bolstered revenue, while an improved business mix and vigorous expense management have fattened profit margins in recent quarters. Ameriprise earns a Quadrix® Overall score of 98 and a Value score of 87. At 13 times trailing earnings, the shares trade 19% below the five-year average P/E ratio and 20% below the average diversified financial company in the S&P 1500 Index. Wall Street expects per-share profits to jump 38% this year and 23% in 2011. Ameriprise is slated to declare September-quarter earnings Oct. 27.

Technology review

IBM ($138; IBM) earned $2.82 per share in the September quarter, up 18% and $0.07 above the consensus. Revenue increased 3% to $24.27 billion, powered by a 10% jump in hardware. The shares fell on the news, hurt by a 7% decline in new service contracts. However, sales at all four of IBM’s core business units rose in the quarter, and the company is capturing a generous share of post-recession corporate technology spending. For full-year 2010, IBM sees per-share profits of at least $11.40, up 14% and above the consensus of $11.29 at the time of the announcement. IBM is a Focus List Buy and a Long-Term Buy.

Apple’s ($309; AAPL) September-quarter profits advanced 68% to $4.64 per share, exceeding the consensus estimate by $0.58. Revenue surged 67% to $20.34 billion, well ahead of Wall Street expectations for $18.86 billion. Unit sales of Macintosh computers grew 27% to 3.89 million, while iPhones leapt 91% to 14.1 million. However, the shares fell as Apple’s profit guidance for the December quarter fell short of the consensus.

Apple sold 4.19 million iPads in the quarter, slightly below Wall Street expectations because of supply problems. However, the company is ramping up production, and sales should pick up when AT&T ($28; T) and Verizon Communications ($32; VZ) begin marketing the device Oct. 28. Apple is a Focus List Buy and a Long-Term Buy. AT&T and Verizon are rated B (average).

Altera’s ($30; ALTR) September-quarter profits surged 263% to $0.69 per share, topping the consensus by $0.04. Revenue jumped 84% on growth of at least 47% across all industry and geographic end markets. Altera expects December-quarter revenue of at least $543 million, well above the $512 million consensus at the time of the announcement, implying minimum growth of 49%. Altera is a Buy and a Long-Term Buy.

Google ($608; GOOG) grew September-quarter earnings 30% to $7.64 per share excluding expenses for stock-based compensation, well ahead of the consensus estimate of $6.69, while revenue advanced 23% to $7.29 billion. Google is rated B (average).

Health-care update

In the September quarter, Abbott Laboratories ($53; ABT) grew profits 14% to $1.05 per share excluding special items, easing past the consensus estimate by a penny. Revenue advanced 12% to $8.68 billion, fueled by a 22% jump in the pharmaceutical business that benefited from the acquisition of Solvay Pharmaceuticals in February. But Abbott missed the consensus sales target, hurt by the September recall of baby formula Similac. Abbott Labs is a Buy and a Long-Term Buy . . . In the September quarter, Gilead Sciences ($37; GILD) reported earnings of $0.90 per share excluding special expenses, up 15% and $0.03 ahead of the consensus. Revenue increased 8% to $1.94 billion. Gilead Sciences is rated A (above average) . . . Johnson & Johnson ($63; JNJ) said September-quarter profits rose 3% to $1.23 per share, $0.08 above the consensus, even though revenue slipped 1% to $14.98 billion. A 5% increase in pharmaceutical sales partially offset an 11% decline at the consumer unit. Sales of devices and diagnostics rose 1%. J&J is rated B (average) . . . St. Jude Medical ($40; STJ) agreed to purchase AGA Medical Holdings ($21; AGAM), a rival heart-device maker, for $1.04 billion in cash and stock. In other news, St. Jude’s September-quarter profits rose 22% to $0.72 per share excluding special items, $0.04 above the consensus. Revenue increased 7%, and the company raised its profit guidance. St. Jude Medical is rated A (above average).

Financial roundup

Bank of America ($12; BAC) posted September-quarter earnings of $0.27 per share, excluding a $10.4 billion impairment charge for its credit-card business, rebounding from a loss last year and exceeding the consensus forecast by $0.11. Including the charge, Bank of America lost $0.77 per share. Revenue edged 2% higher to $26.98 billion. Bank of America is rated C (below average).

Citigroup ($4; C) earned $0.08 per share from continuing operations in the September quarter, compared to a $0.27-per-share loss in the same quarter last year, topping the consensus by $0.02. Sales slid 10% to $20.74 billion. Citicorp has generated a profit in each of the last three quarters. The company continues to divest assets from its Citi Holdings subsidiary, which offers consumer loans and brokerage services, and also holds troubled “special assets.” Citigroup is rated C (below average).

Goldman Sachs ($157; GS) said per-share profits plunged 43% to $2.98, yet exceeded the consensus estimate by $0.70. Revenue tumbled 28% to $8.90 billion, also topping the consensus. Strong results from investment banking were not enough to offset a 36% decline in revenue from trading and principal investments. Goldman Sachs is rated B (average).

In the September quarter, Wells Fargo ($25; WFC) grew per-share profits 7% to $0.60, a nickel ahead of the consensus despite 6% lower interest income. Every business unit posted higher profits, and net loan charges declined 9% from the June quarter. Wells Fargo is rated B.

Morgan Stanley ($25; MS) earned $0.05 per share from continuing operations in the September quarter, compared to a profit of $0.38 per share in the same quarter last year, 67% below the consensus. Excluding lower-than-expected expenses for repatriation of foreign earnings, Morgan Stanley lost $0.07 per share. The bank’s consolidated net revenue plunged 20% to $6.78 billion. Morgan Stanley is rated B.

Corporate digest

In the September quarter, General Electric’s ($16; GE) profits from continuing operations jumped 32% to $0.29 per share, beating the consensus by $0.02. Revenue slipped 5% to $35.89 billion, well short of analyst forecasts. All five business segments registered lower sales, though total orders advanced 7%. GE is rated B (average) . . . September sales for the U.S. video-game industry fell 8%, with software down 6% and hardware plunging 19%, according to industry tracker NPD. Microsoft’s ($25; MSFT) Xbox 360 was the only console to post higher sales. NPD estimates that U.S. consumers spent at least $2.6 billion in the first half of 2010 on games purchased through mobile phones, social networks, digital downloads and subscriptions; that figure also includes used games. The spread of nontraditional gaming could represent a threat to GameStop ($18; GME), which itself is testing new distribution channels with the release of an original video game for Apple’s mobile devices. GameStop is a Buy. Microsoft is a Buy and a Long-Term Buy . . . Wal-Mart Stores ($53; WMT) said it expects higher January-quarter sales in U.S. stores, which have posted sluggish performance over the past year. Wal-Mart Stores is a Long-Term Buy.


Ameriprise Financial ($51; AMP) is being added to the Buy List and the Long-Term Buy List. The Vanguard Short-Term Investment-Grade ($10.90; VFSTX) fund now represents 25.0% of the Buy List and 26.4% of the Long-Term Buy List.

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