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These Blue Chips have been Priced to Move: Ingram Micro, Nokia, Charles Schwab

June 29, 2010 | About:
Over the past thirty years, investors have been pretty discriminating when it comes to decide which stocks to sell when they want to raise cash. Usually, the more speculative the stock, the more likely they were to be sold. But as we saw in the 2008 economic crisis, and as we are seeing again now, all stocks are getting treated with same brush.

From blue chips to micro-caps, everybody’s feeling pain right now. That’s what you get in a world of program-trading, where the majority of trade activity is conducted by computers. Human traders have learned to get out of the way of these machines and sell into downdrafts. Even if they are still fond of the particular names, they are selling anyway.

As I write at mid-day on Tuesday, more than 200 stocks are making 52-week lows today, which is right near the highest levels we’ve seen in nearly 18 months. (The recent “flash crash” saw hundreds of stocks hit lows, but that was due to a flaw in trading systems).

We’ve compiled a short table that highlights a few mid and large-cap names that are being indiscriminately sold. There’s no assurance that these stocks will bounce back in the near-term, but if you’ve got a long-term time horizon, you’re getting a rare chance to buy some of these strong companies while they’re in the markdown bin.

CompanyTickerRecent Price52-week High52-week LowLoss from Peak2010 P/ERatioMarket Cap ($M)
AK SteelAKS$12.26$26.75$12.25-54%14.41,350
CamecoCCJ$21.78$33.74$21.78-35%19.38,570
Ingram MicroIM$15.44$18.00$15.35-19%8.52,560
MonsantoMON$47.15$87.28$46.66-46%18.825,720
Morgan StanleyMS $23.41$35.78$23.42-35%7.932,810
NokiaNOK$8.02$16.00$8.03-50%10.429,820
JC PenneyJCP$22.09$37.21$21.80-41%13.65,240
Charles SchwabSCHW$14.24$19.94$14.24-29%23.717,070
SUPERVALUSVU$11.14$17.89$11.14-38%6.32,390
Electronic ArtsERTS$14.56$22.42$14.50-35%0.74,830
Perfect WorldPWRD$20.90$50.49$20.85-59%6.41,050
QualcommQCOM$32.97$49.80$32.87-34%14.254,210
*Source: Yahoo Finance, Company reports
Ingram Micro (IM)

Just two months ago, executives at Ingram Micro, a leading computer and electronics distributor could sit back and relax. They had just reported a stellar set of results that clearly established the fact the global economic slump had passed. Sales were rising and costs were lean. Operating expenses, as a percentage of sales, are now at about 4.1%, well down from the 4.7% to 4.8% historically. And that led to a third straight quarter of above-plan profits. Now, all management had to do was keep hitting their targets and watch analysts raise their estimates. Sure enough, the 2011 per share profit forecast subsequently climbed above $2. The company had never earned $2 a share at any point in the last decade.

But since then, shares of Ingram Micro have steadily weakened, and have dropped in nine of the last 10 sessions to a 52-week low on Tuesday. Fear of a slowdown in Europe, where the company derives about 25% of sales, are the key concern. Although Ingram Micro won’t deliver quarterly results for another month, perhaps it’s safe to assume that 2011 EPS will be closer to $1.50 than the $2 that analysts currently forecast. Shares are still a bargain at just ten times that forecast. Lastly, the stock is now trading at only about 85% tangible book value. The company had paused a buyback program, but in these market conditions, look for it to start up again soon.

Nokia (NOK)

When we profiled Nokia two weeks ago, we noted that a litany of mis-steps had left shares selling on the cheap. Since then, they’ve become ultra-cheap, touching a 13-year low on Tuesday. The company’s high-degree of exposure to Europe certainly hurts, but it’s fair to wonder if the entire “Euro scare” is being overdone. Business in Europe is likely to slow this year, but these kind of market slumps seem to anticipate that Europe will fall off a cliff. And it’s unclear if things will really be that dire.

Shares of Nokia suffer from what’s known as a “lack of timeliness.” In the absence of any near-term catalysts, investors have few incentives to buy. So they are letting the sellers dictate the trading action. Here’s a catalyst: Nokia has $11 billion in cash, or $6 billion in cash when debt is included. While management waits for Europe to get past this crisis, it can sop up a lot of shares while they are out of favor. A decade ago, when shares were out of favor after the dot-com implosion, Nokia started buying stock, ultimately reducing the share count from 4.8 billion to a recent 3.7 billion. The company could buy back another 700 million shares right now at current prices for about $5.6 billion, which would boost EPS by nearly 20%.

Charles Schwab (SCHW)

As the stock market slumps, retail investors start to get spooked. And if they’re trading less, it means that fewer trading commissions are earned by online brokers. That’s bad news for Charles Schwab. The company has seen its shares rise and fall with the market, and they’re hitting a new 52-week low on Tuesday. Frederick Steierrecently profiled Charles Schwab, and I completely agree with his bullish outlook – if you are a patient long-term investor.

Over the last few years, Schwab has significantly boosted its client base. You wouldn’t know it from the company’s stagnant revenue base. But when the market and the economy are on firm footing, that much larger client base should power the income statement to new highs.

Action to Take --> Ingram Micro, Nokia and Charles Schwab may be seeing secular headwinds right now, but these companies have survived many battlers before. This time around, their shares are especially discounted. They may still drift yet lower, but not by much, thanks to their considerable base of assets.

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-- David Sterman

Staff Writer

StreetAuthority

Disclosure: David Sterman does not own shares of any security mentioned in this article.

About the author:

Street Authority
StreetAuthority, LLC is a research-intensive financial publishing firm that aims to level the playing field for small investors by giving them access to the ideas and insights of some of the country's top investment researchers, analysts and writers. Although we specialize in income and international investment research, we publish a wide variety of newsletters that are geared towards helping EVERY kind of investor profit from today's volatile marketplace. Visit StreetAuthority.

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