By Stockpickr Staff
Updated at 5:25 p.m. from 1 p.m. on March 6, 2009
Each day, business publications are overflowing with headlines relating to the capital markets, the Federal Reserve and economic and overall business conditions worldwide. While these headlines might do their job at catching our attention, they usually fail to provide actionable trading or investment ideas for investment-community readers.
With that in mind, every week Stockpickr goes "behind the headlines," addressing the most popular business stories with the goal of turning daily headlines into superior investing returns.
In a detailed annual report, accounting firm Deloitte & Touche said that there is “substantial doubt” regarding General Motors' (GM) ability to remain a viable company and that there is currently a “going concern” implying that a General Motors bankruptcy is imminent. General Motors is seeking up to $30 billion in additional loans from the U.S. government and more from foreign governments, including the U.K., Sweden and Canada.
Auto part companies and auto repair shops stand to benefit from General Motors' potential demise and a broader weakening economy if it is more economically viable to repair one's current automobile than to purchase a new one.
One company that could benefit is AutoZone (AZO), whose results soundly beat Wall Street’s second-quarter estimates, as profit jumped 9% and commercial sales rose 4.5%. For the second quarter, AutoZone earned $115.9 million, or $2.03 per share, compared with $106.7 million, or $1.67 per share, in the same quarter a year ago. Sales rose 8% to $1.5 billion from $1.3 billion. The mean Wall Street estimate was for $1.95 per share on just $1.4 billion in sales.
AutoZone closed up 31 cents on Friday, or 0.2%, at $152.76.
Another auto parts firm that will likely benefit is O’Reilly Automotive (ORLY), whose fourth-quarter profit rose 5% and sales jumped a whopping 85% after the acquisition of CSK Automotive. For the quarter, O’Reilly earned $42.7 million, or 32 cents per share, compared with $40.6 million, or 35 cents per share, for the same quarter last year. O’Reilly gave full-year 2009 guidance of adjusted profit of $1.83 to $1.87 per share, slightly higher than Wall Street’s estimates of $1.79 per share for 2009.
O'Reilly closed down 37 cents on Friday, or 1.1%, at $32.14.
Though Zep Industries (ZEP) is also associated with the secondary auto market, its shares should be avoided. Zep is the largest seller of vehicle cleaners in the U.S., selling to more than 75,000 auto-body repair shops. It's also the largest supplier of industrial cleaning chemicals to Home Depot (HD). The most recent quarter saw EBIT of 2.8%. Zep just fired 5% of its total workers after the company "unexpectedly began experiencing a significantly lower order rate as a result of general economic conditions while continuing to experience high raw material input costs."
Zep closed up 11 cents on Friday, or 1.6%, at $7.02.
In other recent news, corn and soybeans prices have rallied on speculation of rising demand, a weakening U.S. dollar and recent pledges by China to boost its economic growth. Corn for May delivery rose 0.8% to $3.62 a bushel, soybeans for May delivery gained 0.8% to $8.59 a bushel, and wheat for May delivery advanced 0.7%, to $5.19 a bushel.
The best-leveraged play on the spot prices of corn is Corn Products (CPO). In November, Bunge’s (BG) board voted to end its bid to take over Corn Products, citing the weakness in Bunge’s principal commodity, soybeans. Corn Products is currently forecasting full-year 2009 earnings of $2.10 to $2.60 per share, which at $18 per share or so is less than eight times full-year 2009 earnings.
Corn Products closed up 23 cents on Friday, or 1.3%, at $18.46.
Other names that stand to benefit are shares of Potash (POT) and Mosaic (MOS), two of the largest fertilizer producers in the world. Despite news that OAO Uralkali reduced potash prices for its Brazilian market to as low as $750 a metric ton from $1,000 per metric ton previously, potash prices have remained relatively firm.
In financial news, on Thursday several banks, including Northern Trust (NTRS) and U.S. Bancorp (USB), paid back a total of $7.6 billion to the U.S. Treasury Department as part of the Troubled Asset Relief Program, commonly referred to as TARP, hinting at some financial strength among the battered banking sector.
Moreover, three smaller banks, TCF Financial (TCB), IberiaBank (IBKC) and Sussex Bancorp (SBBX), paid back an additional billion dollars or so.
Under strict guidelines from the Treasury, banks can only pay back TARP funds if they are deemed financial sound.
TCF Financial is trading near its book value of $9.12 per share, IberiaBank is trading 21% below its $46.17 book value, and Sussex Bancorp is trading 291% below its $10.21 stated book value.
Other banks who are interested in paying back TARP funds are Goldman Sachs (GS), Morgan Stanley (MS) and JPMorgan Chase (JPM).
For more ideas, visit the Behind the Headlines portfolio on Stockpickr.
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