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Amazon, Skechers, Bucyrus shine in Oct., but are they good buys?
Published on Saturday, Nov 07, 2009
Bloomberg News
The stock market's waters were languid in October, but some fish were jumping.
Amazon.com Inc., the world's largest online retailer, rose 27 percent for the month. Its third-quarter net income spurted to $199 million from $118 million in the same period in 2008.
Skechers U.S.A. Inc., a shoe and boot maker, also rose 27 percent. Its quarterly net income fell to $24 million from $28 million a year earlier. Analysts had expected far worse. Diluted earnings per share beat expectations by about 49 percent.
Bucyrus International Inc., a maker of open-pit mining equipment, popped 25 percent for the month as its earnings beat analysts' estimates. The company earned $1.21 a share in the third quarter; analysts
had guessed 86 cents.
These stocks' sharp moves stood out in a month in which nothing dramatic happened in the overall market — contrary to October's reputation as a volatile and crash-prone month. The Standard & Poor's 500 Index fell about 2 percent for the month. The Dow Jones industrial average was little changed.
Amazon, based in Seattle, has been on a tear all year. Its October gain brought its total advance year-to-date through Oct. 30 to 132 percent.
Once reviled by some investors as an Internet stock selling for an infinite multiple of (then nonexistent) earnings, Amazon now is a solid operating company with genuine earnings. Last year it earned $645 million on revenue of more than $19 billion.
Too expensive
So do I like Amazon shares now? No, I don't.
Amazon no longer sells for an infinite multiple of earnings, but it does sell for 70 times the past four quarters' earnings, which in my judgment is too much to pay for any stock. Likewise, it fetches 14 times book value (the company's net worth per share). That's just not reasonable.
Amazon will continue to show earnings growth, but its success will continue to attract competition, and some of that competition will engage in cut-throat pricing. Wal-Mart Stores Inc. offering best-selling books below $10 is just one example.
I peg Amazon as a market performer or worse over the next three years.
What do I like better? One stock I favor is Bucyrus International, which is as unglamorous as Amazon is glamorous.
Bucyrus, based in South Milwaukee, Wis., makes excavation machinery used for surface mining of coal, iron ore, copper and other minerals.
Deep roots
If that sounds old-fashioned, maybe it should. Bucyrus was founded in 1880, although it didn't become a publicly traded stock until 2004.
Last year, you couldn't tell there was a recession by looking at Bucyrus' results. It earned a record $3.10 a share in 2008. This year analysts expect an even better showing, with earnings of about $3.91 a share.
Given the company's strong operating results, I consider Bucyrus shares quite reasonably priced at 11 times earnings and 1.2 times revenue.
Skechers, based in Manhattan Beach, Calif., is up 70 percent for the year. Based on its casual but sexy advertising, I've always figured that Skechers sells mainly to teenagers and twenty-somethings.
The company, however, says that it has shoes ''for every age and demographic.''
A small mistake
Earnings per share at Skechers fell to $1.19 last year from $1.63 in 2007. This year, most analysts project about 75 cents. They expect earnings to bounce to about $1.40 in 2010.
At 1.4 times book value and 0.8 times revenue, I don't think you would be making a big mistake if you chose to buy shares in Skechers. In my view, though, you would be making a small mistake.
With the stock in the $21-$22 range, in my view, that's too much to pay for a probable $1.38 or so in 2010 earnings. Then again, I'm a cheapskate. If the stock gets knocked down to $17, I'd be interested.
Another stock that has been on the move is Nu Skin Enterprises Inc. of Provo, Utah, which markets personal care products and nutritional supplements. It sells the products through more than 750,000 independent representatives around the world.
Last year Nu Skin earned $1.02 a share compared with 67 cents last year. This year, analysts expect record earnings of $1.40 a share. The company issued a new earnings forecast in that range on Oct. 20 and the stock rose 10 percent that day. For all of October, it gained 23 percent.
Most analysts like Nu Skin, but I am unenthusiastic. Shareholders' equity at the end of 2008 was about $316 million, or about what it was in 1999. Cash on the books was $115 million at the end of 2008; it was much higher from 1996 through 1998. At 18 times earnings and more than four times book value (corporate net worth), I consider Nu Skin shares pricey.
Disclosure: I have no long or short positions in the stocks discussed in today's column, for myself or for clients.
John Dorfman, chairman of Thunderstorm Capital in Boston, is a columnist for Bloomberg News. His firm or clients might own or trade securities discussed in this column.
Bloomberg News
The stock market's waters were languid in October, but some fish were jumping.
Amazon.com Inc., the world's largest online retailer, rose 27 percent for the month. Its third-quarter net income spurted to $199 million from $118 million in the same period in 2008.
Skechers U.S.A. Inc., a shoe and boot maker, also rose 27 percent. Its quarterly net income fell to $24 million from $28 million a year earlier. Analysts had expected far worse. Diluted earnings per share beat expectations by about 49 percent.
Bucyrus International Inc., a maker of open-pit mining equipment, popped 25 percent for the month as its earnings beat analysts' estimates. The company earned $1.21 a share in the third quarter; analysts
had guessed 86 cents.
These stocks' sharp moves stood out in a month in which nothing dramatic happened in the overall market — contrary to October's reputation as a volatile and crash-prone month. The Standard & Poor's 500 Index fell about 2 percent for the month. The Dow Jones industrial average was little changed.
Amazon, based in Seattle, has been on a tear all year. Its October gain brought its total advance year-to-date through Oct. 30 to 132 percent.
Once reviled by some investors as an Internet stock selling for an infinite multiple of (then nonexistent) earnings, Amazon now is a solid operating company with genuine earnings. Last year it earned $645 million on revenue of more than $19 billion.
Too expensive
So do I like Amazon shares now? No, I don't.
Amazon no longer sells for an infinite multiple of earnings, but it does sell for 70 times the past four quarters' earnings, which in my judgment is too much to pay for any stock. Likewise, it fetches 14 times book value (the company's net worth per share). That's just not reasonable.
Amazon will continue to show earnings growth, but its success will continue to attract competition, and some of that competition will engage in cut-throat pricing. Wal-Mart Stores Inc. offering best-selling books below $10 is just one example.
I peg Amazon as a market performer or worse over the next three years.
What do I like better? One stock I favor is Bucyrus International, which is as unglamorous as Amazon is glamorous.
Bucyrus, based in South Milwaukee, Wis., makes excavation machinery used for surface mining of coal, iron ore, copper and other minerals.
Deep roots
If that sounds old-fashioned, maybe it should. Bucyrus was founded in 1880, although it didn't become a publicly traded stock until 2004.
Last year, you couldn't tell there was a recession by looking at Bucyrus' results. It earned a record $3.10 a share in 2008. This year analysts expect an even better showing, with earnings of about $3.91 a share.
Given the company's strong operating results, I consider Bucyrus shares quite reasonably priced at 11 times earnings and 1.2 times revenue.
Skechers, based in Manhattan Beach, Calif., is up 70 percent for the year. Based on its casual but sexy advertising, I've always figured that Skechers sells mainly to teenagers and twenty-somethings.
The company, however, says that it has shoes ''for every age and demographic.''
A small mistake
Earnings per share at Skechers fell to $1.19 last year from $1.63 in 2007. This year, most analysts project about 75 cents. They expect earnings to bounce to about $1.40 in 2010.
At 1.4 times book value and 0.8 times revenue, I don't think you would be making a big mistake if you chose to buy shares in Skechers. In my view, though, you would be making a small mistake.
With the stock in the $21-$22 range, in my view, that's too much to pay for a probable $1.38 or so in 2010 earnings. Then again, I'm a cheapskate. If the stock gets knocked down to $17, I'd be interested.
Another stock that has been on the move is Nu Skin Enterprises Inc. of Provo, Utah, which markets personal care products and nutritional supplements. It sells the products through more than 750,000 independent representatives around the world.
Last year Nu Skin earned $1.02 a share compared with 67 cents last year. This year, analysts expect record earnings of $1.40 a share. The company issued a new earnings forecast in that range on Oct. 20 and the stock rose 10 percent that day. For all of October, it gained 23 percent.
Most analysts like Nu Skin, but I am unenthusiastic. Shareholders' equity at the end of 2008 was about $316 million, or about what it was in 1999. Cash on the books was $115 million at the end of 2008; it was much higher from 1996 through 1998. At 18 times earnings and more than four times book value (corporate net worth), I consider Nu Skin shares pricey.
Disclosure: I have no long or short positions in the stocks discussed in today's column, for myself or for clients.
John Dorfman, chairman of Thunderstorm Capital in Boston, is a columnist for Bloomberg News. His firm or clients might own or trade securities discussed in this column.
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