Special-situations investing describes
when stocks experience some kind of corporate event that might lead the
market to revalue them, and that leads investors to consider buying
shares in anticipation of the valuation change. General Electric Company, Danaher Corporation, and Johnson Controls
are all in the process of spinning off businesses and restructuring
their companies. As such, they will all look fundamentally different in
the next year or so. However, I believe that the former two have a good
chance of outperforming the market, while Johnson Controls has more
downside risk. Here's why.
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The current earnings season has been disappointing for the industrial sector, but United Parcel Service,
managed to buck the trend with its set of second-quarter results. In
truth, the positive news was more about the company's execution rather
than any help from the macro environment. With that said, let's take a
closer look at five of the key things management wants you to know about
the quarter, and what it means for the company in 2015.
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In an earnings season marked by talk of slowing U.S. growth, Home Depot's (NYSE
second quarter served notice that the housing market remains in good
health. The market would have been excused for some apprehension ahead
of the earnings report. After all, painting company Sherwin-Williams,
which works in an industry closely allied with spending on housing, was
forced to reduce its full-year guidance amid talk of "unprecedented
rainfall" that reduced end-demand growth in the United States. However,
Home Depot raised full-year guidance, and the market promptly took the
stock to an all-time high. Let's take a closer look at the earnings
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It's been a difficult reporting season for the industrial sector, but Danaher Corporation stands
out from its peer group in terms of results and prospects. A mix of
favorable end-market exposure, corporate restructuring activity
(management intends to split the company into two separate parts), and
excitement over its intended $13.8 billion purchase of Pall Corp. has led to the stock's outperformance versus the market and its peer group in 2015.
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Chuck Robbins got his tenure as CEO of Cisco Systems (NASDAQ:CSCO)
off to a good start by delivering earnings ahead of analyst estimates.
While all eyes will be on the new management in the coming quarters to
see any restructuring of Cisco's portfolio, the immediate focus is on
how its businesses are performing right now. With this in mind, let's
take a closer look at the key numbers in the earnings report.
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NICE Systems Ltd. (NASDAQ:NICE)
specializes in hardware and software that captures and analyzes
customer interactions across a multitude of platforms -- very useful for
crime prevention. Meanwhile, Allegion Plc (NYSE:ALLE)
manufactures security doors and locks for use by corporations and homes
alike. Let's take a brief look at both companies and what makes them
attractive for this investing theme.
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Painting and coatings manufacturer PPG Industries
is a curious beast. On one hand, it's a true Dividend Aristocrat,
having raised its dividend for the last 43 years at a compound annual
growth rate, or CAGR, of 7% -- making it attractive to dividend seekers.
On the other hand, its mid-teens growth rate and trailing P/E of around
27 times earnings make it the kind of stock only growth investors will
take a look at. However, I'm going to introduce a third hand into
consideration, and ask whether PPG Industries stock is a buy right now.
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Danaher Corporation
recently delivered a solid set of second-quarter earnings that belied
some of the disappointing reports we have seen from other companies in
the industrial sector in this current earnings season. The company is
known for its business model of acquiring companies and then applying
its Danaher Business System, or DBS, in order to increase their
productivity.
Let's take a closer look at the earnings report and by use of a slideshow see if the business model is still working
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Emerson Electric (NYSE:EMR) was
already having a difficult 2015, but unfortunately it just got a bit
worse with its third-quarter results. The company continued its
three-quarter-long streak of lowering its underlying revenue guidance,
and management continued to caution investors that market conditions are
likely to remain difficult for the next year. Let's take a closer look
at the underlying trends in the results, and the pressures building up
on the company.
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Cognex Corporation
delivered a solid set of results for its second quarter, but its
guidance for the third quarter was nothing less than a disappointment.
In short, management's expectations for revenue fell significantly short
of expectations. The news is all the more disconcerting because the
company has been taking steps to gear up for growth in precisely the
kind of orders and revenue that won't be appearing in the third quarter.
What went wrong?
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Engine and powertrain company BorgWarner
released its second-quarter earnings today, and disappointed the market
by missing analyst estimates and reducing its full-year guidance. If
there's one thing you can conclude from the recent spate of earnings in
the industrial sector, it's that China's automotive sector is slowing.
In truth, after missing analyst estimates
in its first quarter, the pressure was on BorgWarner to come up with a
good set of results this time around. Unfortunately, a combination of
factors conspired to disappoint such hopes. Let's take a closer look at
what happened.
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Commercial real estate services company Jones Lang LaSalle
delivered another strong set of results in its second-quarter and one
detail in its earnings and guidance helped allay some concerns over the
North American commercial construction market.
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Precision Castparts (NYSE:PCP)
missed analyst estimates for revenue and EPS in its first-quarter
results, yet the stock moved sharply higher on the day. The company has
disappointed investors with its past few earnings reports, but that
wasn't enough to stop Warren Buffett's Berkshire Hathaway
from adding to its position in the stock. Despite the disappointments,
or possibly because of them, the stock has become a value proposition.
Let's look at what happened in its first quarter.
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Investors in Johnson Controls Inc. (NYSE:JCI)
have watched the company being restructured in the past couple of
years, and the recent third-quarter results promised more of the same.
Having announced an intent to explore strategic options for its
Automotive Experience segment (dealing in car seating and interiors) in
June, management subsequently released third-quarter results and
announced plans for a tax-free spinoff of the segment -- one that could
change the nature of the company. With this development in mind, let's
look at the five key takeaways from the earnings report.
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Despite some disappointing developments in the last three months, United Parcel Service (NYSE:UPS)
managed to beat earnings estimates with its second-quarter results.
Moreover, management pleased investors when it expressed confidence in
hitting the upper end of the company's full-year guidance range. The
stock is up more than 5% as of this writing. Let's take a look at how
the package delivery company managed to do this.
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For the second quarter in a row, staffing specialist Robert Half International (NYSE:RHI)
reported a good set of results -- only for the market to sell off the
stock. Guessing how and why the market reacts to earnings reports is a
thankless task, and investors are probably better occupied by focusing
on what the numbers mean for the developing trends in the business. With
that in mind, let's take a look at the tale of Robert Half's second
quarter.
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Engineering and design software company Dassault Systemes (OTC:DASTY)
has had a strong year so far in 2015, with the stock price up 26% year
to date. Moreover, its second-quarter results confirmed the company's
growth prospects, and for the second quarter in a row, management
upgraded its full-year guidance.
Let's take a look at four key takeaways from the results.
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Check Point Software Technologies Ltd. (NASDAQ:CHKP)
released a set of second-quarter earnings that suggested the company is
on track with most of its growth initiatives in 2015. In recent years,
the company has been known as the highly cash generative but low growth
investment option in the network security sector. However, given its
recent performance it might be time to reappraise that assessment. Let's
take a closer look at the results.
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Illinois Tool Works (NYSE:ITW)
unveiled a mixed set of second-quarter results that initially
disappointed the market, and the stock is marked down a few percentage
points as of this writing. However, there are a lot of things going on
underneath the surface of the headline numbers. Let's take a closer look
as I highlight the key points in the quarter.
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Back in October of last year, I took a look at the investment prospects for Advance Auto Parts,
(NYSE: AAP) stock. The investment case for buying the stock rests on
the successful integration of General Parts International, a deal that
results in Advance Auto becoming the largest auto parts retailer in the
U.S.
With the stock up more than 25% since October, I thought it would be
time to update investors on progress with the integration. Is it going
smoothly enough to justify the stock price move?
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