Editors' pick: Originally published Nov. 25.
There wasn't much movement in the major market indices a day before the long Thanksgiving weekend began.
The Nasdaq fell slightly. The New York Stock Exchange, S&P 500 Index and Dow Jones Industrial Average rose a tick or two.
Amidst the relative calm, the stocks of three companies that are well known in their industries had big gyrations. Deere & Company (DE) , GameStop (GME) and Urban Outfitters (URBN) could point to some good news, but all have faced major challenges in recent months and longer.
They're worth a look, but in the end, investors should place their money elsewhere.
Deere & Company
Shares of Deere & Company, the maker of John Deere tractors and other heavy farm machinery, rose more than 11% in Wednesday trading after the company released its earnings. Despite profits falling 17% in the quarter, the company posted earnings per share of $0.90, down from $1.08 per share a year ago but well above analysts' estimates of just $0.40 per share.
Revenue from equipment fell 5% during the quarter down to $5.65 billion, but that was still better than the $5.38 billion Wall Street was expecting. This quarter also represented the end of Deere's fiscal year, for which it posted revenue of $24.1 billion and earnings per share of $4.81, both figures easily beating the $23.17 billion in revenue and $4.32 per share earnings analysts had been expecting.
A weak market due to low commodity prices has Deere's management pessimistic about the future. The company believes earnings will fall from $1.52 billion this year to just $1.4 billion in 2017 as sales will continue to decline by around 1%.
Deere appears to be dealing with weak demand well and investors liked what they heard earlier this week. But an economic crisis could have an outsized impact on Deere and investors. Stay on the sidelines and watch things play out while focusing on more recession proof businesses.
Another big winner was GameStop. Shares rose more than 8%. The company offered revised guidance for the quarter earlier this month, so the $1.96 billion in sales and earnings per share of $0.49 wasn't much of a surprise for investors.
Moreover, investors liked what management had to say about the future.
Earnings are expected to come in within a range from $2.23 to $2.38 per share for the current quarter, which would indicate a 4% decline from last year, while same-store sales are expected to decline 7% to 12%.
Declining figures certainly don't seem appealing but for a company that is dealing with a lack of new products -- mainly gaming consoles -- a single digit decline is a win. This past quarter, the company posted an 8% decline in EPS while same-store-sales fell 6.5%, but that was seen as a win since the prior quarter's decline was 11%.
GameStop is on the risky side, and since it is so reliant on new gaming consoles and games -- inputs that are out of the company's control -- owning the stock requires a lot attention to the industry and trying to time the fluctuations of the stock price. There are much easier ways to make money.
One big loser today was Urban Outfitters as shares fell more than 12%. The drop came after the company missed quarterly results on both the top and bottom lines. Revenue of $862.5 million and earnings per share of $0.40 were below the $869 million in revenue and $0.44 per share earnings. Year-over-year sales rose 4.5% while EPS fell by $0.02.
Urban's namesake brand Urban Outfitters posted a same-store sales increase of 5.2%, but the company's other brands, Free People and Anthropologie, posted sales declines of 1.5% and 2.7%. Part of the higher-than-expected EPS figure was because the company bought back stock and had a lower tax rate compared to the previous year. These sort of financial tricks make a management team look better than they are when dealing with costs and weakening sales.
As should be the case for many retailers, investors would be wise to stay away from Urban Outfitters both in the short and long term.
Deere, GameStop and Urban Outfitters are strong in one area or another, but their strengths don't outweigh their weaknesses. This makes them poor investments.
With many calling for a coming crisis, now is the perfect time to make sure your portfolio is protected. Each one of these powerful, yet overlooked companies barely notices when the market tumbles. And they'll skyrocket when it rebounds. You can pick all seven up for pennies on the dollar right now. But that'll change the instant average investors catch wind of just how bad things really are. Get their names here before it's too late.