Lawson, Visteon on Under $10 Watch List
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 from the market in the short term. In addition, we are adding two stocks to our Watch List today. (Much of this article was sent earlier to our subscribers. If you would like to see all our alerts and stock picks, click here for a free trial.)
On Friday after the close,
FedEx
(FDX) - Get Report
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, 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) - Get Report
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 because of 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 the surge in 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 that 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) and
Visteon
(VC) - Get Report
.
Lawson is a former model portfolio holding that we sold a few months ago after a weaker-than-expected quarter. Competitors
Oracle
(ORCL) - Get Report
and
SAP
(SAP) - Get Report
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 after the company reported a solid quarter a few weeks ago, we are taking another look.
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.
Lawson Software and Visteon are on the Watch List for TheStreet.com Stocks Under $10 service. Frank Curzio writes regularly about stocks priced below $10 a share, such as Advanced Micro Devices (AMD) - Get Report, Arris (ARRS) - Get Report and Tenet Health Care (THC) - Get Report for TheStreet.com
.
In keeping with TSC's editorial policy, Frank Curzio doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Frank X. Curzio is a research analyst at TheStreet.com, where he works closely with Jim Cramer and writes
TheStreet.com Stocks Under $10
newsletter. He also hosts "The Real Story" -- a daily podcast on TheStreet.com on which he reviews the latest headlines and offers stock-picking advice. He is a regular guest on FoxBusiness News and previously was the editor of The FXC Newsletter and portfolio manager for Greentree Financial. He appreciates your feedback;
to send him an email.