Bounce Candidates: Ford and Quantum
Two quality companies delivered news last week that didn't impress Wall Street and the result was "sell, sell, sell" -- that happened to Quantum Corp. (NYSE:QTM) and Ford Motor (NYSE:F). Add to the mix the drama with Egypt and shares of Ford and Quantum fell victim to the short trade.
Bounce candidates: Ford (F) shares lost 13.4% on Friday and finished at $16.27. Quantum (QTM) shares fell 30% for the week and closed at $2.76. Both of these stocks are popular with traders and after such a steep decline, they may be played in the opposite direction at the mercy of existing shareholders.
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FORD A SWING AND A MISS
The Street expected Ford Motor (F) to post earnings of 48 cents a share, it came in at 5 cents a share, thus the selling was rampant and the stock lost $2.50 on Friday. Ford's Q4 net income was $190 million, not impressive when in the prior quarter of last year it was $886 million. The best part about this bad news, hardly any of the analysts are slamming the company, if anything the media is being patient with Ford and going bat for its CEO Alan Mulally.
Even with Ford losing 13% last Friday it shares have made a triumphant 518% return since 2009 and they didn't need a TARP handout like GM. Ford also effectively raised guidance for North American industry sales in 2011. As Liam Denning at the WSJ.com put it:
Assume the 2011 earnings consensus was cut by, for example, 10% after these results. Ford's stock would then be trading on a multiple of 8.5 times; slightly below General Motors' 8.8 times. At that level, Ford is worth owning.
When you buy Ford (F) shares you get one of the best CEO's of our time -- Alan Mulally. Mulally won Automobile Magazine's 2010 Man of the Year award and was previously the executive vice president of Boeing and the CEO of Boeing Commercial Airplanes (NYSE:BA). Mulally began his career with Boeing as an engineer in 1969. Mulally was largely credited with BCA's resurgence against Airbus in the mid-2000s. If there's one stock you buy for its seasoned management team and outstanding CEO, its Ford.
QUANTUM FALL, NOT LEAP
Since Jan 7th Quantum (QTM) are down 37%, Wall Street has all but given up on the company, except for Needham. Last Thursday (Jan 27th) Needham & Company reiterated their "Buy" rating on Quantum Corp. (QTM and believe it or not, raised their price target on Quantum from $4 to $4.50. Thus Needham has high hopes and believes the company's stock price could increase 63% in the next 12 months.
Last week Quantum reported Q3 adjusted earnings of 7 cents per share, on revenue of $176.22 million. It was a substantial miss as the Street expected earnings of 9 cents per share, on revenue of $192.4 million.
Chairman and CEO Rick Belluzzo said, "Although we were driving to a higher overall revenue target for the quarter, we made progress on a number of initiatives designed to increase channel traction and grow our branded business that demonstrate we are on the right track."
The company forecast Q4 adjusted earnings of 4 cents to 5 cents, on revenue of $165 million to $175 million.
Capstone downgraded Quantum Co. (QTM) from "Buy" to "Hold" rating after the earnings result and set a $4 price target. That implies a 44.9% return from Friday's close.
Bottom line: Quantum isn't dead yet, the analyst's 40% or 60% increase as forecasted is a bit much, but even half that number would be a fantastic one year return for a stock you can buy under $3.
AMERICA LOVES A COMEBACK
Ford more than Quantum are the perfect candidates for a bounce play in the coming weeks. Both of these stock have low short interest, Quantum short float is at 6% and Ford's comes in at 6.6% (as of Jan 14th). Quantum has really taken a beating, its a riskier play than Ford but both of these stocks deserve a second look after such a massive selloff last week.
Disclaimer: No positions in any of the securities mentioned in this publication.