Solid Fundamentals Mixed With Lowered Expectations
Edgar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
This article encapsulates decent companies with solid fundamentals and great prospects that have been plagued with lowered expectations. You can be the judge whether management has over-promised and failed to deliver on the mentioned stocks, but what depicts the true reality is the stock price performance in the recent months. Often times a lack of price appreciation mixed with investors’ declining sentiment results in a losing stock that becomes prey to counter-cyclical traders and scalpers that sell into strength at every bullish momentum.
One such stock laggard has been Sirius XM Satellite (NASDAQ: SIRI). For the past month this satellite radio broadcasting company has been trading sideways in a tight range of $2.00- $2.10 until Friday’s rally. On the contrary, a recent Motley Fool article has actually noted that management has been under-promising and over-delivering.
Sirius XM has actually grown its subscriber revenue from $622.4 million in Q1 2011 to $700.2 million in Q1 2012. Subscriber revenue consists of subscription fees, revenue derived from agreements with certain daily rental fleet operators, activation and other fees. In addition, investors are not seeing more improvements in Sirius; in March 2012 they paid down $32.57 mln. of their 9.75% senior secured notes due on 2015, $9.5 mln. of which was settled in April 2012. The company also noted a subscriber growth of 622,000 ahead of earnings release which boosted investor optimism into the stock price. I see absolutely no reason why SIRI shouldn't trade higher than $2.25 in the coming weeks.
A stock that has left investors disheartened is Peabody Energy (NYSE: BTU), the best of breed in the coal space. As we all know due to the last mild winter and record low natural gas prices, coal stocks have been suffering a major sell-off. Patriot Coal filed for bankruptcy and Arch Coal (NYSE: ACI) is shifting around expenses and refinancing loans to stay afloat as health care and pension costs of $100 mln. a year remain to be a financial burden.
Per International Energy Agency, coal still fuels about 40% of the world's electricity and more than 75% of Australia's electricity. Peabody Energy has 11 mining operations in Australia alone and has won numerous awards and recognitions for the most efficient British thermal units conversion from coal to electricity, diesel fuel, hydrogen, and natural gas. While the sector is currently suffering from ample supply and low prices, investors need not to be worried as the world's fastest growing nations, led by China and India are still driving the increase in demand. Coal-fueled power production is set to nearly double by 2035. While high and low grade coal is currently struggling from oversupply and low prices, the recent industry sell-off was a perfect opportunity for investors to buy the best of breed companies that have considerable amount of exposure to metallurgical coal, not just thermal. BTU has recently fallen below $20, which considers the stock extremely oversold on valuation basis. I expect Peabody Energy to trade in the range of $23-$26 by the end of August despite the sector's weakness.
And my last stock contestant had to be Facebook (NASDAQ: FB). I recently went from a "Buy" to "Neutral" on the company for several reasons. The first reason has to be Zynga's (NASDAQ: ZNGA) terrible net loss of $22.8 mln. for Q2 that dove the stock to $3.09 reflecting a negative mark on Facebook's partnership. Not only the EPS guidance was lowered from $0.23 to $0.04, but now the company is plagued with securities claims as Rosen Law Firm investigates why $516 million worth of stock was dumped by pre-IPO owners without any disclosure of adverse business trends.
Another reason is Facebook's announcement that they're still having trouble with the effectiveness of the displayed ads on its platform. In the latest earnings results, Sheryl Sandberg commented, "Ads in news feeds and sponsored stories are more effective than ads in the right hand column of a user's page". It begs the question as to how facebook's new social-ad strategy will be implemented and will users eventually turn to Google (NASDAQ: GOOG) Plus at a faster pace as the platform begins to annoy them with flashier ads. It could get worse if clients, not seeing expected results from sales and the recent 9% price hike, begin to follow GM's footsteps in cancelling their contracts with Facebook in search of better results elsewhere.
edgarambart30 has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook. Motley Fool newsletter services recommend Facebook. 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.If you have questions about this post or the Fool’s blog network, click here for information.