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business newsWhy Buying Manpower Won't Work
By
Justin Sharon
Aug 06, 2010 4:10 pm
With earnings well off its pre-recession peak and valuation stretched by historical standards, its highly cyclical shares appear primed for a contraction.
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Janney Montgomery Scott this morning risked the wrath of Jersey Shore’s JWoww by lowering its rating on her MTV paymaster Viacom (VIA-B) to Neutral from Buy. While the stock is sliding in a torrid overall tape today, it's worth pointing out the downgrade to effectively a Hold is fairly benign -- “sell” is still the four-letter word all too rarely uttered by equity analysts -- and shares recently traded near their 52-week peak reached in April. This week the media conglomerate, whose assets include VH1 and Comedy Central, reported a 52% increase in second-quarter profit driven by a long-awaited recovery in advertising revenue. To be sure, Chairman Sumner Redstone is 86 and Shrek Forever After was a summer box-office disappointment for the firm’s Paramount film division. However with the cable-industry outlook improving -- News Corp (NWS) also announced encouraging earnings this week -- this pullback could present a buying opportunity. In the meantime investors are effectively paid to wait, with shares sporting a healthy dividend yield of approximately 1.8%.
William Shatner found fame on Star Trek but lasting fortune only arrived when he cannily offered to become an online travel company’s $600 Million Dollar Man. Non-Trekkies will be befuddled by where his USS Enterprise boldly went, exactly, but the Priceline.com (PCLN) spokesman has certainly seen his stock options go to Pluto lately. The shares, which are bucking even today’s tide of red ink, stand at a decade high after reporting second-quarter revenue nearly doubled to $2.26 per share. Though the Law of Large Numbers catches up with all (even Apple (AAPL)) in the end, right now investors are paying up to bask in undeniably impressive earnings. With travel-loving Europeans, who gave birth to the budget-airline concept with easyJet and RyanAir, accounting for 70% of Priceline’s profit stream, overseas growth provides a cushion against a still sluggish US economy. Since shares are trading at a hefty 29 P/E ratio, I'd be inclined to wait for a more attractive entry point on an equity which is not for the faint of heart. Even with this year’s rapid run up the stock has suffered steep pullbacks arising from erupting volcanoes and imploding euros alike. For a myriad of other ways to play the global tourism market -- including Hyatt (H), which today scored a Street upgrade – see Carol Kopp’s article, Investing in (Non Airline) Travel Stocks.
Madison Square Garden (MSG) is another stock surging on an otherwise dire day after reporting EPS of $0.18, beating the Street by $0.12, on 9.6% revenue growth. The company, a 1:4 spin-off from Cablevision (CVC) in February, also owns New York’s Knicks and Rangers, Radio City Music Hall, and a roster of regional sports channels. It endured a rocky baptism by failing to land free agent LeBron James to the “world’s most famous arena” last month, as you may have heard. While undoubtedly an attractive name for any native New Yorker to own, investors should never confuse a company with its stock. MSG has a storied history but its income stream has been notoriously fickle in recent years, bouncing between gains (2009 and 2007) and losses (2008 and 2006.) As such, today’s strong showing may be a cue to take profits while waiting for Eva Longoria’s husband to fill the giant void left by James.
No positions in stocks mentioned.
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