By Larry Gellar
http://seekingalpha.com/article/372371-5-stocks-reacting-to-recent-positive-catalysts?source=yahoo
I selected these five stocks for discussion because they have experienced important events that could make them good additions to your portfolio. NYSE Euronext and Seagate Technology recently reported strong earnings, and AT&T is showing strength in its wireless division. Meanwhile, U.S. Bancorp and A123 Systems just signed deals that should cause investors to take a look at them. Below, I will analyze these five companies to determine how recent positive catalysts will benefit shareholders now.
NYSE Euronext (NYX) is an operator of securities exchanges. The company just reported earnings, and it delivered a fourth-quarter operating profit of $212 million, which was higher than analyst expectations by $4 million. Here's how CFO Michael Geltzeiler described the situation: "Despite challenging market conditions, our fourth-quarter results were solid with an increasing contribution from non-trading revenue sources and continued cost discipline." Indeed, NYSE Euronext is a pretty strong investment right now. Now that the European Commission has ruled out a takeover by Deutsche Boerse, the company will focus on its non-core businesses such as providing information and trading systems. CEO Duncan Niederauer has signaled that NYSE Euronext may attempt a few acquisitions in the coming months, which is a strategy I like. This stock also has a terrific dividend yield (4.3%), and NYSE Euronext shouldn't have any problems keeping those dividends up. In fact, NYSE Euronext had nearly $300 million of free cash flow in 2010 and over $550 million of free cash flow in the first three quarters of 2011. Besides the money used to pay out dividends, large portions of that cash flow went to paying off debt. This is a wise move until more productive capital expenditures can be identified.
Seagate Technology (STX) is a maker of hard disk drives. The company just reported adjusted earnings per share of $1.32 and revenue of $3.2 billion for its fiscal second quarter. Both of these numbers were significantly higher than analysts were expecting. As discussed here, Seagate's strong earnings were boosted by a number of different factors. Most importantly, because the floods in Thailand hurt supply, the company was able to increase prices significantly. In fact, average selling price went from $55 to $68. CEO Steve Luczo is very optimistic about the future as well, noting that these prices may be able to stay where they are even as supply improves. Seagate figures to benefit from the release of Windows 8 later in the year, and analysts may have been overestimating the impact of Ultrabooks. While some Ultrabooks don't use the type of hard disk drives that Seagate makes, Mr. Luczo explained that this only applies to the highest-end models. Seagate offers a terrific dividend yield (3.7%), and I wouldn't be completely surprised if another dividend increase is on the way. With $1.264 billion of operating cash inflow in fiscal year 2011 and $879 million of operating cash inflow in the two quarters after that, Seagate has the money in the bank to return value to shareholders.
U.S. Bancorp (USB) is a regional bank. The company just announced it would buy Union Bank's (UNB) institutional trust business, which provides services for labor management trusts, retirement plans and investment advisors. While financial terms of the deal weren't revealed, this figures to be a good move for U.S. Bancorp provided that they didn't overpay for the unit. U.S. Bancorp will gain 4,300 new clients with a combined $42 billion in assets. For a well-run bank like U.S. Bancorp, this is a wise way to expand without overdoing it. By improving its market share, I think U.S. Bancorp will enjoy increased profits in the future because of this deal, and other recent deals also attest to U.S. Bancorp's good management. Specifically, U.S. Bancorp just made a similar trust acquisition from UMB Bank as well as an acquisition from BankEast Corporation. Although U.S. Bancorp has somewhat higher price to earnings (11.79) and price to sales (3.39) ratios than JPMorgan Chase (JPM) and Wells Fargo (WFC), U.S. Bancorp's price should still be considered reasonable. Operating margin of 41.89% and quarterly revenue growth of 14.2% are two statistics why. A dividend yield of 1.7% also sweetens the deal for potential investors.
AT&T Inc. (T) is a major provider of telecommunication services. AT&T continues to shows strength in its lucrative wireless phone business. I think we could see a renewed subscriber growth now that T-Mobile USA remains a standalone entity. AT&T can poach a significant share of its subscribers due to AT&T's superior product offerings like the iPhone 4S. This is what allows AT&T stock to have a dividend yield of 5.9%, and I wouldn't be surprised if AT&T increases its dividends soon. After all, the company had a whopping $34.648 billion of operating cash inflow in 2011. A large portion of that went to capital expenditures, but this is actually a good sign because AT&T's network still needs a lot of improvement. Additionally, the company recently announced the release of its U-Verse app for the Apple (AAPL) iPad. This new piece of software could help U-Verse become significantly more attractive to cable customers, who have often preferred Comcast's (CMCSA) Xfinity service. Indeed, the new app has a variety of exciting features. For instance, while watching U-verse TV, customers can use their iPad as a remote control, source for TV listings, and an information provider about different TV programs. For these reasons, I believe AT&T is still a solid bet for investors.
A123 Systems, Inc. (AONE) is a maker of battery and battery systems. The company just signed a deal with Northern Powergrid, a U.K. subsidiary of MidAmerican Energy Holdings. Indeed, A123 will supply power-storage systems to Northern Powergrid to help that company manage fluctuations in its system. On the other hand, A123 has also hit a couple of headwinds. Its biggest customer, Fisker Automotive, ceased work at one of its factories, which in turn prompted an analyst downgrade. Fisker's decision to stop work at the factory was due to a loan decline from the U.S. Energy Department, so it wouldn't be unheard of if A123 other customers are similarly affected in the future. Two companies that compete with A123 are Johnson Controls (JCI) and Valence Technology (VLNC). While A123 and Valence both have negative net income for the past 12 months, Johnson Controls is a more traditional play with a price to earnings ratio of 13.68 and dividend yield of 2.2%. A123 does have nifty products out right now, though, and the price to sales ratio of 1.66 seems reasonable. With that in mind, I think A123 could be an appropriate choice for the most risk-tolerant investors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
