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5 Stocks That Could Rebound in 2011 - 21913 views
MILLBURN, N.J. (Stockpickr) -- Recently, I recommended three beaten-down stocks that could rebound in 2011: Intel (INTC), Sears Holdings (SHLD), which I've since bought call options on, and Dean Foods (DF), which it turns out is also on David Tepper's radar.
Today I'm looking at another batch of stocks poised for comebacks
Women's Apparel Stocks
The women’s apparel business had an off year in 2010, for various reasons. Women who typically are responsible for family clothing purchases and budgets kept their pocketbooks tight in 2010. Furthermore, as the employment picture failed to improve in 2010 and fewer women were joining the work force, fewer women were augmenting or replacing their work wardrobes. 2010 wasn't a particularly dynamic year in terms of women’s apparel sales and must-have fashion items, either, from what I gathered the many retail conference calls I listened to in 2010.
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Three women’s apparel stocks in particular performed poorly in 2010: Talbots (TLB), Charming Shoppes (CHRS) and Coldwater Creek (CWTR). All of these companies delivered disappointing results earnings and stock performance and suffered from a variety of issues, including excessive inventory, merchandising mistakes, poor management and economic conditions.
Coldwater Creek and Charming Shoppes should report operating losses for 2010. As for Talbots, on Jan. 11, the company announced that it was expecting a much bigger-than-expected quarterly loss, in the range of 15 cents to 19 cents per share. As a result, analysts’ consensus estimates, which were for a 14-cent profit, are adjusted to a 17-cent loss.
That said, all three of these companies are taking steps to alleviate these losses and turn themselves around. For example, Talbots is going to focus on merchandising initiatives to improve product assortment as well as branding and marketing strategies that will accelerate the pace of attracting new and reactivating lapsed customer as well as seeking to improve its balance sheet and debt levels.
Coldwater Creek’s management also recognized it merchandizing issues and will seek to improve its collections and reposition its brand to a better demographic. The Idaho-based retailer announced a replacement for the position of president and chief merchandising officer, effective May 1, 2011. A new chief financial officer was appointed last April.
Charming Shoppes also suffers from poor merchandising and found itself stuck with too much inventory, which the company is addressing. Furthermore, Charming Shoppes is going to have to focus on its private label credit card program which is experiencing declining revenues and returns. This company is now on the hands of a new chief operating officer, and the board is conducting a search for a new chief executive officer.
All of these problems, especially the merchandising issues, will take some time to fix. I am not saying that all three of these stocks will rebound in 2010, but, as a group, I am expecting a rebound. If you were to play this theme, I would do so as a package of all three names, a field bet of sorts.
One stock that I didn't include as one of my health care stocks to consider was Medtronic (MDT), which manufactures and distributes medical devices and equipment. In 2010, the company faced some issues of concern for shareholders.
Medtronic, which has been fighting the FDA over approval of a new medical device, the CoreValve System, received some good news recently from the regulatory agency. The FDA granted conditional approval to Medtronic for a revised design trial study.
Chairman and CEO William Hawkins is expected to retire in April, and the board has initiated a search for his replacement. No reason was given for his decision.
In addition, the company completed the takeover of blood pressure treatment company Ardian earlier this month. The acquisition is expected to be dilutive by 2 cents in its fiscal fourth quarter ending April 2011 and by 5 cents to 6 cents in fiscal 2012.
All of these issues weighed on the stock in 2010, which ended the year down nearly 16%. But as 2011 unfolds, I see the potential for a stock rebound. Medtronic's products will be in ever-increasing demand as baby boomers -- and our population in general -- age. For its fiscal year ended April 2011, earnings are expected to grow by 5%. In the following year, earnings should grow by about 7%. The stock pays a dividend of 2.5%. The balance sheet isn't great, but it's good, with long-term debt of about $10.55 billion only partially offset by cash and short-term investments of about $3.54 billion and long-term investments of about $5.45 billion.
Medtronic comprises 0.7% of Renaissance Technologies' portfolio and 1.4% of Daniel Tepper's at Appaloosa Management. It was one of the top three health care stock picks for 2011 from Action Alert PLUS' Stephanie Link and one of Morningstar's five-star large-cap stocks for 2011.
Southwestern Energy (SWN) engages in the exploration, development and production of natural gas in the U.S. In 2010, Southwestern Energy declined by more than 22%, making it one of the worst-performing energy stocks of the year.
Natural gas prices were weak in 2010, while crude oil prices rose dramatically. Despite that weakness in natural gas prices, Southwestern Energy still is expected to generate 14% earnings growth in 2010. The declining price for natural gas is likely to reverse as demand for natural gas is certain to be on the rise as a cheaper alternative to soaring crude oil prices.
Furthermore, with a Republican House of Representatives, more attention may be shifted toward favoring natural gas after those measures were blocked by the former Democratic controlled legislative body. In contention is the issue of “fracking," a process by which fractures are made in rocks in order to recover more natural gas. Environmentalists are concerned that fracking will result in pollution to drink water supplies.
Anaylsts expect Southwestern's earnings to decline 4% for full-year 2011, but I think they're wrong. Southwestern is a well-run company with an excellent track record of earnings and stock price growth. Exxon Mobil (XOM) recognized the importance of natural gas with its purchase of XTO Energy for about $31 billion in 2010. If the stock price of Southwestern does not improve, I would expect another larger global integrated oil and gas company to swoop in and purchase Southwestern Energy.
Southwestern comprises 2.5% of T. Boone Pickens' portfolio and 1.5% of Westport Asset Management's. It was one of the 10 best S&P 500 stocks of the past decade, and Dan Dicker selected it as one of his six natural gas stocks for 2011.
-- Written by Scott Rothbort in Millburn, N.J.
At the time of publication, author was long Sears Holdings calls.
Scott Rothbort has over 25 years of experience in the financial services industry. He is the founder and president of LakeView Asset Management, a registered investment advisor specializing in customized separate account management for high net worth individuals. In addition, he is the founder of TheFinanceProfessor.com, an educational social networking site, and publisher of The LakeView Restaurant & Food Chain Report. Rothbort is also a professor of finance at Seton Hall University's Stillman School of Business.