The Week that Was: Groupon, Ford, GM and Target
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The reaction to the job numbers announced on Friday has continued the market’s recent slump. But before investors become too concerned, it's worth noting that the price movements we’ve seen the last few trading days in particular is to be expected. Recoveries take time to gain traction – which of course is necessary for a sustained return to a growing market. Not there yet of course, but many of the economic indicators are at least pointing in the right direction.
As for the employment numbers for March, 120,000 new jobs were added – in and of itself that isn’t bad considering where we’ve come from. But with the recent string of successes – December through February were fantastic -- missing expectations hurt what was already an edgy market. So what impact does this have on the opportunities discussed last week? Not much – once the smoke clears that is. Investors should consider this a hiccup – albeit a good-sized one – but we’ve seen too much growth in spending, consumer confidence and jobs to think that all will be naught.
You know the story by now – even after some dicey financial reporting missteps Groupon (NASDAQ: GRPN) enjoyed a successful IPO last November. But as last week’s article outlines, the financial reporting problems discovered by the SEC prior to the IPO were simply the tip of the iceberg. Re-stating results – as Groupon management was forced to do early last week - is rarely going to be a good thing. In this case management fessed up to an additional $14 million loss and over $22 million in earnings losses, above what was previously announced. And when the reporting problems come on the heels of increased competition and eroding investor confidence, Groupon looks even less attractive.
Ford and GM
For automakers, last week could not have turned out much better – at least as far as sales results and expectations for the balance of 2012. Chrysler started it all after announcing a 34% increase in March auto sales as we talked about last week. And it wasn’t long before Ford and GM both shared their pleasant news.
After today’s disappointing employment figures some investors may wonder if now’s still the time – and the answer is an emphatic “YES,” particularly for Ford (NYSE: F) and GM (NYSE: GM). Both are undervalued relative to others in the industry – by a wide margin - and that was before today’s sell-off. Both industry stalwarts are expected to continue their string of monthly sales increases and fully expect 2012 to be a banner year.
While on a relative basis GM remains the less expensive of the two based on earnings – and is also a sound option for investors -- Ford is hardly overbought at only 7 times future earnings. The current 2.43 P/E Ford boasts is largely due to a huge, one-time tax credit but even with that removed Ford is one to watch. And the 1.6% dividend yield isn’t bad either.
Much like the auto industry last week was a stellar one for retail. Though the news was good almost across the board, Target (NYSE: TGT) remains one of the best options for investors. You can check out a more comprehensive look at industry results in last week’s article, but once again it's Target that stands above the rest. With same-store sales increasing over 7% year-over-year analysts were quick to point out unseasonably warm weather and the early Easter holiday as reasons why. Of course those were important factors but many of the economic indicators that bode well for any number of industries certainly played an important role in that kind of growth. The weather wasn’t that good – there are other things going on here.
While Target is not likely to continue their string of four straight quarters of revenue growth – the holiday quarter is the holiday quarter after all – it’s not difficult to imagine quarterly results continuing to improve over the year-earlier period. Considering Target remains one of the least expensive in the industry and generates a 2+% yield to boot, investors would be wise to take advantage.
The investment opinions included are just that, opinions. Investing involves risk, as you well know, so consider your decisions wisely. Tim holds no position in the securities mentioned in this article.