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By Frank Curzio
Subject: Stocks Under $10: LWSN, VC
Tuesday, May 13, 2008 12:47 PM EDT
Dear Subscriber to TheStreet.com Stocks Under $10,
After the latest round of economic and earnings data, we
felt it was a good time to give readers a quick update on
what we expect to from the market in the short term. In
addition, we are adding two stocks to our Watch List today.
On Friday after the close, FedEx (FDX:NYSE) sharply lowered
its fourth-quarter guidance. From the headlines we read,
the miss was caused by a rise in oil prices as the company
said, "While we have dynamic fuel surcharges in place, they
cannot keep pace in the short term with rapidly rising fuel
prices." However, after taking a closer look at the press
release, management also said, "The weak economy has
restrained demand for U.S. domestic express package and LTL
freight services."
FedEx is widely viewed by many as an economic bellwether,
and despite the warning, shares finished Monday's trading
day relatively flat. We also saw negative news from bond
insurer MBIA (MBI:NYSE) on Monday, -- which included a
quarterly loss of $2.4 billion -- and the stock closed 5%
higher that day.
Turning to the economy, a number of media reports suggested
that Monday's broad rally in equities was due to the
stronger dollar. However, during this most recent earnings
season most S&P 500 companies exceeded estimates due to the
weaker dollar, as a large amount of business is now
conducted overseas. Also, most economists suggest that the
only reason first-quarter GDP (gross domestic product) was
not negative was due to surging exports -- again attributed
to the weak dollar.
Over the past few weeks, it appears as if we are in a
market where all news is good news and stocks refuse to
trend lower despite the underlying risks in the
marketplace. However, we expect this trend to reverse
course as investors come to their senses and realize the
future may not be as bright as the media and the recent
surge in equities suggest.
Despite our less-than-optimistic short-term outlook, we are
seeing many opportunities in the under-$10 space that have
high price-appreciation potential. The two additional
stocks we're adding to our Watch List are Lawson Software
(LWSN:Nasdaq) and Visteon (VC:NYSE).
Lawson is a former model portfolio holding that we sold a
few months ago following a weaker-than-expected quarter.
Competitors Oracle (ORCL:Nasdaq) and SAP (SAP:NYSE) had
also reported weak quarters, and the sector was not on our
list of favorites for some time after that.
But after our one-on-one meeting with CEO Harry Debes last
week, we believe the company is worth a second look. Debes
explained that synergies from its merger with Swiss-based
Intentia in 2006 are just beginning to materialize and will
lead to improved margins. Also, Lawson recently won out
over its major competitors for several large contracts, and
its financials are strong.
Turning to Visteon, this name appeared on our Watch List in
2007 when shares were above $8, but tighter credit markets
and an enormous debt position scared us away. Since then
shares have been nearly cut in half, and we are taking
another look after the company reported a solid quarter a
few weeks ago.
Visteon's debt position remains high at $2.8 billion, but
it has been improving as management closed down
unprofitable plants and shed several thousand union
employee contracts. Also, the company has increased its
international exposure by diversifying its operations
outside of the major U.S. automakers.
We are in the early stages of our research process for
these two names, and as always we will alert readers if we
decide to initiate a position in either one.
Regards,
Frank Curzio & the Stocks Under $10 Investment Team
Frank welcomes your questions on Stocks Under $10. Please
email Frank with your questions at
stocksunderten@thestreet.com.
However, please remember that Stocks Under $10 is not
intended to provide personalized investment advice. Do not
email Frank seeking personalized investment advice, which
he cannot provide.
