Pearson, FTD, Gannett are on the Casualty List
Posted: October 04, 2016
The third quarter was not bad at all — for most stocks.
But don’t tell that to holders of Pearson PLC, down 24 percent in the quarter, or FTD Cos. Inc., which fell 19 percent.
Both of those stocks have good long-term prospects, in my opinion, and are worth buying at the current prices. I’ve put them on my Casualty List, a quarterly roster of banged-up stocks that I think have excellent recovery potential.
Also on my newest Casualty List are First Solar Inc., which declined close to 19 percent in the third quarter, and Gannett Co., which dropped 15 percent.
Strong record
The Casualty List you are reading is the 54th I’ve compiled. I’ve done them every quarter from 2001 to the present, with the exception of 2007 and 2008, when I temporarily retired as a columnist. One-year results can be calculated for the first 50 lists.
The average 12-month return for those 50 lists has been 17.7 percent, versus 8.8 percent for the Standard & Poor’s 500 Index.
My Casualty List selections have beaten the index 28 times and trailed it 22 times. They have been profitable 35 times out of 50.
Bear in mind that results for my column picks are theoretical and don’t reflect actual trades, trading costs or taxes. The record of my column selections shouldn’t be confused with the performance I achieve for clients. And past performance doesn’t guarantee future results.
The list from a year ago did well — up 27.4 percent compared to 11.9 percent for the S&P 500. Joy Global Inc. (JOY), a maker of mining equipment, led the parade with a 72 percent gain. Kulicke & Soffa Inc. (KLIC), a semiconductor equipment maker, chipped in a 35 percent return and Emerson Electric Co. (EMR) gained more than 22 percent.
Gap Inc. (GPS), a clothing retailer, continued to struggle, down close to 20 percent.
Pearson PLC
And now it’s time for some new selections. I’ll start with Pearson PLC (traded in the United States under the symbol PSO), a British company that is the world’s largest educational publisher.
Recently Pearson sold off the Financial Times, which it owned for many years. It also sold its 50 percent stake in The Economist.
Pearson has reported 13 consecutive annual profits. But its stock fell more than 24 percent in the third quarter, reflecting a loss for the six months through June, the British exit from the European Union, and fears about a recession in Britain.
I think the last point is a red herring, since Pearson gets most of its revenue in the United States and the rest of it from all over the world. At the present depressed price, Pearson shares yield more than 7 percent in dividends.
FTD
FTD Cos. Inc. (FTD), which helps consumers order from distant florists, had a bad 2015, losing $79 million on revenue of $1.22 billion. But analysts expect the company to return to profitability this year. The stock is selling for only 9 times estimated 2016 earnings.
Founded in 1910, the company was originally a cooperative of florists. The initials FTD stand for Florists’ Transworld Delivery. The company gets money from consumers and florists.
In 2015, FTD acquired Provide Commerce, which sold flowers and gifts on the Internet. This broadened FTD’s product line and fattened its revenue total. But FTD wrote down the value of Provide Commerce’s assets, which was the main cause of FTD’s loss for the year.
First Solar
A leading maker of solar equipment in the United States, First Solar Inc. (FSLR) is based in Tempe, Ariz. Falling prices for oil and gas have weakened consumers’ desire to switch to solar energy. The stock was down more than 18 percent in the second quarter.
In 2008 the stock was flirting with the $300 line. Today it sells for less than $40. Trading at six times recent earnings and 0.7 times book value (corporate net worth per share), it seems attractively cheap.
If Hilary Clinton wins the presidency, she is likely to advocate solar energy as forcefully as did President Obama. A Trump presidency, however, would probably be a negative for this stock.
Gannett
My wife says that I, as a former newspaperman, fall too easily for media stocks, especially newspaper stocks. That may be so. Nonetheless, Gannett Co. Inc. (GCI) looks good to me after declining 15 percent last quarter.
Gannett owns USA Today, some 90 local daily publications and about 400 other publications. Many of them have associated websites — a fact people should remember when they say that newspapers are dinosaurs because advertising is increasingly moving online.
This particular dinosaur is yielding 5.5 percent in dividends, and its profit margin has been expanding lately.