Monday Winners: Deer Consumer Products, American Superconductor, Tivo

David Sterman's picture

Monday, May 17, 2010 - 12:29pm

by David Sterman

Among the biggest winners in Friday's early trading are American Superconductor (Nasdaq: AMSC), Tivo (Nasdaq: TIVO) and Deer Consumer Products (Nasdaq: DEER).

Top Percentage Gainers -- Monday, May 17, 2010
Company Name (Ticker) Intra-Day Price Intra-Day
% Gain
52-Week High 52-Week Low
Deer Consumer Products (Nasdaq: DEER) $8.51 +10.5% $18.97 $5.09
American Superconductor (Nasdaq: AMSC) $33.01 +6.6% $43.95 $21.31
Tivo (Nasdaq: TIVO) $10.75 +5.8% $18.93 $6.41
*Table includes companies with minimum market capitalizations of $200 million and three month trading volumes of at least 100,000 shares. All percentage returns are listed as of 12:15PM Eastern Standard Time. Click on ticker symbols for up-to-the-minute price quotes and percentage gain data.

China's Deer Consumer Products raise Outlook, plans Buyback

Shares of China-based Deer Consumer Products (Nasdaq: DEER) are up nearly +11% after management made moves to highlight the apparently low valuation of the company's stock. Deer makes a wide range of kitchen appliances for both the domestic market, as well as brand-name U.S. manufacturers such as Stanley Black & Decker (NYSE: SWK).

During the past six months, Deer has continually raised sales and profit forecasts, to no avail, as shares have substantially weakened on concerns that the Chinese economy will soon slow from its high-growth phase. That slowdown is simply not evident, according to management. They expect sales to double and profits to rise roughly +50% this year. Shares trade for around 12 times profits, and less than 10 times projected 2011 profits. To bolster shares, Deer will buy back up to $20 million in stock, which would reduce the share count by roughly 6% if fully enacted.

Action to Take --> As long as Chinese stocks remain out of favor, shares of Deer are unlikely to build on today's gains. But once investors start to take note of the very low valuations for Chinese stocks, then shares of Deer could move back into the low teens, which implies a target price-to-earnings ratio (P/E) that is still one-third of the 2010 earnings growth rate.

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Another Order for American Superconductor

Investors tend to fret when a company derives the bulk of its revenue from just one major customer, and with good reason: If that customer fails to stick around, sales could plummet. That concern has long been a drag on shares of American Superconductor (Nasdaq: AMSC), which counts China wind-power operator Sinovel as its biggest customer. Lucky for investors in AMSC, Sinovel shows no signs of slowing its pace of orders. On Monday morning, Sinovel just gave another $445 million contract to AMSC.

And as I noted in this column from late March, American Superconductor has begun to add other customers to its roster.

This morning’s contract announcement is pushing shares up around more than +7%, though analyst forecasts are likely to rise at an even greater percentage. Per-share profits look set to rise more than +60% this year, and once this morning’s deal is incorporated into Fiscal (March) 2012 forecasts, profits should grow at a similar clip then as well. Shares trade for less than 20 times that likely upwardly revised number.

Action to Take --> Shares, which have had a recent resurgence from $25 to $33, look set to re-visit the 52-week high of $43.

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TIVO Picks up the Pieces

Shares of Tivo (Nasdaq: TIVO) fell off a cliff Friday morning when a court ruled that the video-recording firm is not necessarily eligible for a $400 million payment from Echostar (Nasdaq: DISH) for patent violations. Friday’s drop was a mirror image of a gain posted in shares in early March when courts had initially ruled in favor on the patent dispute.

As the dust has settled, some investors are snapping up shares of Tivo this morning. Their logic: the court didn’t overturn any ruling, but only opened the appeals process from a panel of three judges to a full trial. That litigation is likely to drag on, but Tivo could still prevail. That hopeful scenario is pushing shares up nearly +6% in Monday trading.

Action to Take --> Despite the small pop on Monday, shares appear to almost fully discount any positive outcome for Tivo. Keep track of this case, as the stock moves off the radar. You may want to take a small speculative position as we get closer to the trial date if shares stay in a funk.

David Sterman does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.