Stock Picks and Analysis
Choosing two profitable stocks amongst a myriad of potential alternatives is a daunting task to say the least. In order to narrow my choices from thousands to two, I examined several aspects of companies I was interested in. Among these were, company overview, alpha and beta ratings, price ratios, price charts, and company headlines. After evaluating this information, I chose Intuit INC (INTU) listed on the NASDAQ and Johnson and Johnson (JNJ) listed on the NYSE.
Intuit, Inc. is a provider of small business, tax preparation and personal finance software products and Web-based services that simplify complex financial tasks for consumers, small businesses and accounting professionals. The Company’s principal products and services include Quicken, QuickBooks, Quicken TurboTax, ProSeries, Lacerte and Quicken Loans. Intuit offers products and services in five principal business divisions which include Small Business, Tax, Personal Finance, Quicken Loans and Global Business (Market Guide).
Intuit develops, sells and supports small business accounting, tax preparation and consumer finance desktop software products, financial supplies, and Internet-based products and services for individuals and small businesses. This past fiscal year ended on 7/31/02 and revenues rose 18% to $1.36 billion. Net income from continuing operations totaled $69.8 million vs. a loss of $118.1 million. Results reflected higher quicken loans division sales and lower acquisition-related charges. (Market Guide) Inuit has continually met or surpassed previous financial estimates in a time when most companies are barely staying out of the red.
On 9/8/02 Inuit, Inc had an Alpha rating of .0084 indicating it was performing better than previously estimated. Intuit also had a Beta rating of .24 indicating its volatility had decreased. This beta indicates that the company could possibly increase or decrease .76% less than the index. Due to this small Beta, Intuit is of relatively low risk as it is independent of the motion of the index. Inuit has a Relative Performance Rating of 53.81. This stock overperforms the NASDAQ 100 INDEX by 53.81 %. Intuit has gained 7.29% since December 31.
The current price of Inuit was $45.900 with a P/E of 29.61. The stocks fair value using its P/E Ratio was dismal at $24.58. From a fundamentalist view the stock should be sold as it is over inflated above its fair value. However, I believe Inuits high performance financials will attract more buyers who will continue to push the price up even further. These trends can be seen when examining the candlestick chart.
The Candlestick chart has formed a Bullish pattern which suggests that buyers are entering into the stock. The stock should continue higher for the short-term. By looking at Intuits charts we can observe that Intuit has had steady gains despite a period of loss between mid-July and mid-August. We can also see that it has a Support at 43.44 and Resistance at 47.42. If it breaks this resistance the stock should continue higher to 50.13. The close proximity of resistance at 47.42 will be focused on as a possible refraction from this level may occur.
On October 1, 2002 the chairman of the executive committee sold 200,000 shares of stock in the company. Although this may make some investors uneasy, Inuit came out earlier last month and said its fiscal 2003 revenue and profit will be in line with its expectations. On September 25, Intuit announced that the connectivity of Quicken Software for Windows to financial institutions via Open Financial Exchange (OFX) has surpassed the 2,000 mark. This connectivity, more than any other personal finance software product on the market, allows over 15 million Quicken for Windows customers to download their financial transactions via secure connections directly from banks, credit card companies, and brokerages. Financial institutions that connect to Intuit’s latest versions of Quicken for Macintosh and QuickBooks also do so via Open Financial Exchange. It is clear that Intuit is quickly taking lead in the financial software industry.
I see Intuit as a strong buy for both the short and long term periods. It has been consistently outperforming both its 50 and 200 day trading averages. The company has good financial estimates and encouraging monetary gains. In todays bear market, Intuit has steadily made positive returns.
Johnson and Johnson
Johnson & Johnson is engaged in the manufacture and sale of a broad range of products in the healthcare field. The Company conducts business in virtually all countries of the world. Johnson & Johnson’s primary interest is in products related to human health and well being. The Company’s worldwide business is divided into three segments: Consumer, Pharmaceutical and Medical Devices and Diagnostics.
In June 2001, the Company merged with ALZA Corporation. Under the terms of the merger, ALZA Corporation will retain its name and survive as a direct, wholly owned subsidiary of Johnson & Johnson. ALZA Corporation is a research-based pharmaceutical company that offers drug delivery technologies. ALZA applies its delivery technologies to develop pharmaceutical products with enhanced therapeutic value for its own portfolio and for many pharmaceutical companies. ALZA’s sales and marketing efforts are focused on urology, oncology and central nervous system products. (Market Watch).
For the six months ending on 6/30/02, Johnson and Johnsons revenues rose 11% to $17.82 billion. Net income rose 15% to $3.49 billion. Revenues reflected a solid growth in NEUTROGENA and AVEENO skin care products and McNeil Nutritional’s SPLENDA sweetener products. Net income reflects an improved profit margin and lower expenses as a percentage of sales. Johnson and Johnsons financial status is encouraging as it continues to grow and expand. The company is in an enticing position to become a leader when the market turns.
Johnson and Johnson has a high Relative Performance, outperforming the S&P 500 Index by 26.63%. Its volatility has been decreasing over the last month and is at a moderate risk with a beta rating of 0.91. Johnson and Johnson had an alpha rating of .0064 indicating that it has been performing better than previously estimated. Although the stock is down 1.03% from last December, it has gained more than 5.96% this month.
The current price of Johnson and Johnson was $56.20 with a P/E of 17.03. The stocks fair value using the P/E Ratio was encouraging at $65.74. From a fundamentalist view the stock is a good buy as it is undervalued by nearly $10.00. Although this is not the only variable to consider when choosing a stock, Johnson and Johnsons undervalued price could be realized when the market turns. There is also a good deal of resistance between its closing and fair value prices.
From the charts we can see Johnson and Johnson has continually had a bullish pattern since a large loss in July. This increase looks as if it will remain steady throughout the short-term period. Johnson and Johnson has a support at 51.96 and resistance at 56.25. If it breaks this resistance it will probably continue to 59.16. Again, this stocks close proximity to its resistance may cause recoil in price.
Johnson and Johnson is ambitious about several of its new products in testing. On September 25, it announced a large clinical trial showed its experimental devices to treat clogged heart arteries performed significantly better than current technology. Doctors and analysts expect the new technology to revolutionize the treatment of coronary artery disease. Although many analysts downgraded Johnson and Johnson from a strong buy to outperform Monday, they still site it as a good buy.
Johnson and Johnson has been trading above both its 50 and 200 day averages and is promising. Its current market position is very attractive as it may become a market leader when the DOW turns around. Johnson and Johnsons undervalued price, market position, and earnings make it a good pick in a sea of ambiguity.
After considering the market position I have decided to take a moderate risk approach. I will allocate 40% of my resources to Johnson and Johnson and 30% to Intuit, Inc. The remaining 30% I will hold in cash. Although the saying Cash is trash, applies to a bull market, I am still apprehensive as to when this turnaround will occur. For now I will benefit by holding cash, but if the market turns at the end of our two month period as many analysts believe, I will lose out.