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Updated from 3:28 p.m. EDT
We removed credit card giant
from our "Recommended" dividend stocks list. Our downgrade was based mainly upon the slowing consumer market and Visa's recent poor stock performance.
Visa has seen its shares lose nearly 26% in the last two months, with investors concerned about consumer weakness. The company makes its money from credit-card transaction processing, as opposed to making loans, so they've been able to avoid a lot of the debacle afflicting the financial services sector.
We believe investors may be better positioned in shares of MasterCard. Comparing the two from a valuation standpoint, MasterCard trades at 21 times 2009 earnings estimates, as opposed to 28 times 2009 earnings for Visa. These are two great brands, but for now, we'll stick with just
. Visa has a 0.61% dividend yield, based on last night's close of $68.42. Investors should be patient and look for a better entry point on Visa. We'll be sure to tell you when we see it!
Investors Looking to Check Out of Host Hotels
Host Hotels & Resorts
is continuing the streak of lackluster performances coming out of the hotel and lodging sector. The slowdown in travel and cutbacks among corporate stays is hurting the entire industry.
The company, which operates 118 properties, earned $753 million in 2007, down 11% from 2006. Host Hotels lowered their funds from operations to $1.75-$1.85 per share for the full year. Analysts had pegged profits of $1.88. Funds from operations (FFO), which adds such items as amortization and depreciation back to net income, are what analysts use most to gauge the strength of a real estate investment trust.
Shares of HST have been cut in half from year-ago levels. The company pays a dividend yield of 6.90%, based on last night's closing price of $11.60. We think investors may soon think about checking back into this company's shares, but for now we remain on the sidelines with our recommendation. We will certainly keep investors updated if our ratings change.
Altera Programs a Nice Earnings Report
gave tech investors some good news in their earnings call last night. Revenue came in 13% higher than the year-ago period and was better than what analysts had expected.
Management credits gross-margin improvement and lower-than-planned operating expenses. The company also doesn't see customers in the telecommunications sector making significant changes to their capital spending plans, despite the weaker environment. The wireless carriers are expected to carry the company's growth as the company moves forward.
Altera shares are up 15% this year, and we just upgraded their rankings this morning, but the shares still fall short of our recommendation. The company pays a dividend yield of 1.04%, based on last night's closing price of $19.21. We will be monitoring Altera and see if they can keep this performance up. If they do, we'll welcome them on our "Recommended" list.
Intel Beats Earnings, but Should We Care?
issued a strong earnings report Tuesday, fueled by a 25% rise in quarterly profit amid strong sales of microprocessors used in notebook computers. The company's lack of dividend increase, however, leaves us with a lukewarm feeling on this stock.
Make no mistake, Intel's numbers were good -- they beat Wall Street's expectations, earning 28 cents a share, and, contrary to many investors' fears, demand for microprocessors held up during this past quarter. Management's guidance was also good. The company continues to be bullish on microprocessor and chipset sales, especially in notebook computers, which are on pace to outsell desktop PCs this year.
We were hoping that Intel would increase its dividend payout in order to reward current shareholders and attract some new investors. Instead, Intel reportedly spent $2.5 billion in share buybacks, allotting zero capital for a dividend increase.
Advanced Micro Devices
have been disappointing chip investors, so we do tip our hat to Intel management for taking advantage of their competition's missteps. As for investors, we just don't know if Intel's growth will remain consistent enough to lift shares and deliver positive returns for your portfolio.
RIO Management Missing a Steel Opportunity
Compania Vale Do Rio's
reluctance to consider outside investment from steel producers may be a huge mistake.
RIO is the world's largest producer of iron ore pellets, the key component in steel manufacturing. The company has been benefiting from skyrocketing iron ore prices, which have jumped anywhere from 60% to 90% since April. Unfortunately, the iron price boom has not translated to higher stock prices for RIO. The stock is currently down 30% from its levels two months ago.
Steel makers, naturally, have been searching for ways to reduce their expenditures on iron ore. Rumors have been spreading recently about steel companies looking to purchase stakes in large iron ore producers, but thus far, RIO's management has been reluctant to consider outside investments.
We feel RIO is making a huge mistake by not being more open to investment from steel producers. Given the current global economic slowdown, demand for steel (and iron ore by proxy) will not last forever. The window of opportunity may be shrinking for companies like RIO to sell a piece near the top.
We will continue to watch RIO closely, but investors should look at other plays in the commodity spacethat offer better upside.
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