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Tickers in this Article: JDSU, COST, SHLD, WMT, TGT, HD, LOW
As an investor, it is imperative that you constantly review the merits and multitudes of stocks. This continuous research process will assist you in making certain that you have another home for your money when you sell out of an existing position.

That said, I will be reviewing several high profile companies that have been in the news as part of a three part running series.

My hope is that, if nothing else, the stocks being reviewed will give you, as the reader, some insight into what is driving these companies, as well as what their prospects are for future growth.

Here they are:

JDS Uniphase (JDSU): Once a favorite of both the buy and sell side, JDS Uniphase has fallen on some seriously tough times.

An industry-wide slowdown, intense competition, and several miscues by management have relegated the stock to the doghouse. In an article dated June 19, 2006, entitled "Fallen Angels Ready To Take Flight Again", I highlighted some of the reasons the company might be about to turn things around.

I pointed out the company's roughly $1 billion cash position (that number is $1.2 billion now), the potential for short covering, and as well as the longer-term prospects for their cable and phone networking products. Make no mistake, I feel exactly the same way about the longer term prospects.

However, I am a bit disconcerted by management's continued inability to meet Wall Street expectations. I mean either their investor relations function isn't working properly, or management's visibility is just so poor that they can't give an accurate revenue forecast more then a quarter out.

For example, just last week the company reported its fourth quarter results. They were decent. Revenue and earnings targets were essentially met, but the company warned that they will do between $312 and $328 million in the first quarter of fiscal 2007. That's well below the $328 million to the roughly $332 million analysts were looking for.

Again, I believe in the company's prospects for the long haul. After all, communications networks are only becoming more abundant and more sophisticated, which will play to JDS' advantage. But management's lack of valuable guidance is what is giving me serious pause.

Bottom line: If I didn't have a position already, I would probably wait until year end before jumping in. My gut tells me that tax loss selling may drive the shares lower. Although under $2, I just can't see how one can go wrong with an investment horizon of three to five years.

Realistically, if the company is able to get its ducks in a row and string together a couple of quarters of consistent, predictable, and meaningful growth, I think the stock could double from here.

Costco (COST): Last week Costco, one of my favorite places to shop, issued some guidance on the company's fourth quarter results. Apparently, I haven't been buying enough! Management indicated that the company will probably earn between 68 and 71 cents a share in Q4. Wall Street had been figuring the company would earn as much as 77 cents a share for the quarter.

The problem: According to the company, consumers aren't laying money out for big ticket items such as furniture, so margins are taking a hit. As a result, I expect analysts will be ratcheting down their estimates over the next few weeks. So expect to see some not so flattering headlines out there.

Plus, I would expect to see some selling as both retail and institutional investors digest this information and realize that in spite of the company's low prices, consumers are still reluctant to lay out their hard earned dollars for the company's wares.

That being said, I like this company. I like the store format. I think they are good advertisers, and excellent at drawing membership. Over the long haul, I think they have a viable niche. Its just that now, I think is a lousy entry point.

Frankly, I'd wait for some indications that consumer spending is leveling off before jumping in. Keep in mind that Costco doesn't have as much play with their prices as a higher-end retailer. In other words, if the company is forced to cut prices further to lure customers, it will lose its financial leverage, and have a serious impact on margins going forward. My gut tells me that the worst isn't over.

Sears Holdings (SHLD): In mid August, Sears reported a second quarter profit of $1.88 a share, well north of the $1.67 that was expected. But don't get too excited. Comparable store sales were down 3.8% in the quarter, and total sales were down about $400 million.

So how did Sears make money? It posted a gross margin improvement of more then 100-basis points, and cut other costs. But keep in mind that cost cutting isn't a longer term growth strategy. It'll only take a company so far.

So what is the potential catalyst here? Sears is sitting on roughly $3.7 billion in cash and there is speculation that the company will make an acquisition in order to spur future top line growth.

For those unaware, Sears is run by Edward Lampert, the fellow who helped turn around Kmart. He is a smart guy, and so far, has managed to keep the company afloat. And rumor has it that he is readying himself to spend some of Sears' loot in an effort to boost shareholder value.


But I think he'll have to pull a real rabbit out of his hat. Think about it. The company's stores are generally older and are in many cases in need of remodeling. Also, its prices aren't very competitive given the emergence of other big name discounters, ala Wal-Mart (WMT) and Target (TGT).

And while the company continues to draw customers for its appliances and tool selection, I just can't help but think that this is a doomed strategy. Seriously, in a slowing economy, and with competitors such as Home Depot (HD), and Lowe's (LOW) opening stores on virtually every corner, I am concerned that Sears may be in a bit of trouble.

I emphasize the word "may", because again, Sears has a long and storied history, and Lampert is a smart cookie. That said, I think it makes sense to sit this one out on the sidelines. I simply see more downside to the shares from these levels then upside.

Stay tuned for part two!

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