4. Microsoft
Dorfman’s take: I admit, I never thought I would see Microsoft Corp. on this list. But when you see the maker of the best-selling computer software in the world sitting there in the bargain bin, you buy.
Microsoft, based in Redmond, Washington, fell 21% last quarter. You can now pick up the shares for 12 times earnings. Over the past 10 years, Microsoft has sold for an average of about 23 times earnings. The hot fires that stoked Microsoft’s earnings growth in the mid-1990s have abated. Back then, the company had five straight years in which earnings rose 20% or more. There is still some heat left. In the first quarter Microsoft earned $4 billion on sales of $14.5 billion. Its return on stockholders’ equity was 42%, an envy-inspiring level of profitability.
Analysts think Microsoft’s earnings increased by about 27% in the fiscal year that ended June 30. They foresee more modest growth in the fiscal year that started last week. However, I think there is room for positive surprises, as Microsoft benefits from demand for its latest operating system upgrade, Windows 7.
Microsoft, based in Redmond, Washington, fell 21% last quarter. You can now pick up the shares for 12 times earnings. Over the past 10 years, Microsoft has sold for an average of about 23 times earnings. The hot fires that stoked Microsoft’s earnings growth in the mid-1990s have abated. Back then, the company had five straight years in which earnings rose 20% or more. There is still some heat left. In the first quarter Microsoft earned $4 billion on sales of $14.5 billion. Its return on stockholders’ equity was 42%, an envy-inspiring level of profitability.
Analysts think Microsoft’s earnings increased by about 27% in the fiscal year that ended June 30. They foresee more modest growth in the fiscal year that started last week. However, I think there is room for positive surprises, as Microsoft benefits from demand for its latest operating system upgrade, Windows 7.
3. EBay
Dorfman’s take: EBay Inc., the online auction firm located in San Jose, California, is trading for less than $20, down from about $27 three months ago. In recent years, it has lost market share to Amazon.com in online retailing, but still is growing strongly.
The company has become the leading retailer in mobile commerce, in which people order merchandise using Blackberry, iPhone, Droid or similar smartphones, Colin Gillis, a New York-based analyst at BGC Partners LP told Bloomberg News last week.
EBay’s 2009 revenue of $8.7 billion and earnings of almost $2.4 billion were both records. Sales and earnings were more than double their 2004 levels, when the shares traded at more than $50. The company is debt-free and the stock sells for 13 times earnings. Pounce.
The company has become the leading retailer in mobile commerce, in which people order merchandise using Blackberry, iPhone, Droid or similar smartphones, Colin Gillis, a New York-based analyst at BGC Partners LP told Bloomberg News last week.
EBay’s 2009 revenue of $8.7 billion and earnings of almost $2.4 billion were both records. Sales and earnings were more than double their 2004 levels, when the shares traded at more than $50. The company is debt-free and the stock sells for 13 times earnings. Pounce.
2. General Dynamics
Dorfman’s take: General Dynamics Corp., which is down 23% in total return for the quarter, has been slammed as more people become convinced that defense spending will have to be sliced as Congress tries to address the large federal deficit. The Falls Church, Virginia, military contractor makes planes, ships, weapons and information systems.
I agree that General Dynamics faces a difficult environment, but that is why its stock sells for less than 10 times earnings. The company increased its earnings in eight of the past 10 years; last year they were unchanged at $6.17 a share, a record.
I agree that General Dynamics faces a difficult environment, but that is why its stock sells for less than 10 times earnings. The company increased its earnings in eight of the past 10 years; last year they were unchanged at $6.17 a share, a record.
1. American Eagle Outfitters
Dorfman’s take: Investors punished American Eagle Outfitters Inc. in the last quarter. The share price of the clothing retailer for teenagers and young adults declined 36%, including dividends.
The stock faltered after the company forecast second-quarter earnings below analysts’ expectations. Yet I would put some faith in the Pittsburgh-based company’s long-term record, including positive earnings for 14 consecutive years.
I also like its international expansion push. Working with foreign partners, it opened stores this year in Dubai, Kuwait and Israel. It plans to enter mainland China and Hong Kong in 2011.
[Disclosure note: Mr. Dorfman owns shares of General Dynamics personally and for clients. He holds no long or short positions in the other stocks discussed in this slide show.]
The stock faltered after the company forecast second-quarter earnings below analysts’ expectations. Yet I would put some faith in the Pittsburgh-based company’s long-term record, including positive earnings for 14 consecutive years.
I also like its international expansion push. Working with foreign partners, it opened stores this year in Dubai, Kuwait and Israel. It plans to enter mainland China and Hong Kong in 2011.
[Disclosure note: Mr. Dorfman owns shares of General Dynamics personally and for clients. He holds no long or short positions in the other stocks discussed in this slide show.]
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