Future Outlook for November's Best Stocks
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In the month of November the S&P 500 was virtually flat. However, for five stocks it was a month of incredible returns which led the market with unprecedented gains. But with such large monthly gains, is it time to unload these stocks and take profits, or are there still gains ahead?
- The month of November began with a bang for Abercrombie & Fitch, with a 9% gain following a report that the long-term sales impact from hurricane Sandy would be minimal. However, the bulk of its November rally occurred on the 14th, following earnings that beat EPS expectations by $0.28 and significantly rose its outlook for 2013.
- All of Titanium Metals’ gains occurred on November 12, when the company announced its acquisition of The Precision Castparts. Therefore, further gains from this stock will now cease, although Titanium Metals did have a “go shop” provision, allowing a TIE committee to solicit higher bids for the next 30 days. So who knows, maybe there will be further gains?
- Much like Abercrombie & Fitch, TripAdvisor rallied following earnings that beat bottom line expectations and posted revenue growth of 18% year-over-year. The stock also received a slight bump on the 12th following a two-notch upgrade to “Overweight” from Morgan Stanley, which is a “believer” in the company’s new monetization strategy.
- Computer Science received a boost in the month of November following an earnings report in which it crushed bottom line expectations, missed on the top line, and significantly increased its full-year guidance for 2013. The stock also received a 5% boost on the 19th after an upgrade to “Buy” from Deutsche. The firm noted a faster turnaround than expected being the culprit for the upgrade and bullish outlook.
- JDS Uniphase got off to a good start in November when Fabrinet announced what might be the most impressive quarter of the month, which then created gains in most of the optical component stocks. Furthermore, the stock rose following a strong quarter from Cisco in which the company was surprisingly upbeat about service provider activity. Then, there was the announcement from AT&T about increased spending on its network; this news moved nearly all telecom equipment/component names.
Reflection & Outlook for the Top Performers
To my amazement, Abercrombie & Fitch is still trading with a 6% loss in 2012, despite its incredible month in November. Prior to November, the apparel giant was one of the worst performing stocks in the market. Obviously, it was an incorrect trend, and now the stock is racing to eliminate the loss with strong fundamental performance. With that being said, I think ANF is a definite “buy.” The company is not only growing its top and bottom line but is also becoming more efficient with better margins and has solid global guidance for 2013.
During this last quarter, all of the major travel companies announced strong earnings. But honestly, I felt as though TripAdvisor’s were the weakest of them all. The company missed top-line expectations and only grew by 18%. Furthermore, with Priceline’s acquisition of the search engine database company Kayak, I believe that TripAdvisor may lose some of its edge. Therefore, with a price/sales of 7.37, it might be best to avoid this stock for now.
Computer Sciences Corporation saw a steep decline in 2011, and despite strong YTD gains it is still far from its 2011 highs. The company looks to really be improving its operations and is trading foolishly cheap compared to fundamentals and expected growth. I think this is a stock that should definitely be on your radar, but just be sure to keep an eye on its debt and news regarding financing, because it’s still a vulnerable company.
My only problem with JDS Uniphase’s trend is that it wasn’t a result of any fundamental changes -- it was all speculative. Sure, Fabrinet and Cisco posted great quarters, but that doesn’t have anything to do with JDSU. And I understand that AT&T’s $3 billion spending hike is big for equipment companies, but who says that it will benefit JDS Uniphase? So far, I haven’t seen the growth from JDS Uniphase nor any key development to suggest future growth to validate such a strong month. Instead, I prefer Alcatel-Lucent, whose largest customer is AT&T and is trading considerably cheaper compared to fundamentals.
Just because a stock trades higher for one month does not make it a good investment. Some of these stocks will now trade even higher and some lower; I am most optimistic about ANF and Computer Sciences but immediate trends are hard to call. If interested in any of these stocks, then I gave you a good head start -- now perform more due diligence and you might find a good investment among the five.
BrianNichols has no positions in the stocks mentioned above. The Motley Fool owns shares of Titanium Metals and TripAdvisor. Motley Fool newsletter services recommend Titanium Metals and TripAdvisor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!