These three companies just didn't live up to Mr. Market's expectations last week. Sometimes an earnings stumble is a signal to sell, but digging in the dirt is also a good way to find turnaround candidates while they're getting beaten down.
Our first underperformer this week is metal components manufacturer Precision Castparts
Fellow Fool Rich Smith argues that it wasn't a miss at all if you remove $0.05 per share of restructuring costs. Yet even those results and the end of the Boeing strike aren't enough to give him confidence in the stock. "As low as they seemed pre-earnings, expectations still may be too high," says Rich.
And I can see why. Management doesn't expect the strike effects to go away until the next quarter, leaving the current fiscal period wallowing in missing sales. Precision had also been expanding its operations in 2008 in advance of higher aerospace demand forecasts that were supposed to last well into 2010 -- but that hope hit a wall of global financial meltdowns. "Future demand appears to be flattening out," as the company puts it now.
Then again, our Motley Fool CAPS community gives the Stock Advisor recommendation a top five-star rating. And if all goes well at Boeing, parts orders for the new 787 "Dreamliner" should start rolling in beginning in the first half of 2009, renewing Precision's potential for revenue growth.
So all in all, I'm going to have to disagree with Rich here. Precision's stock was hit harder than the general market in 2008, dropping 41% in the last 12 months and now trading at just eight times trailing earnings. In my eyes, it looks like a solid value.
Born to be wild
Next up, we have motorcycle legend Harley-Davidson
Harley's operating margin dwindled from 18% a year ago to just 12% this time because of sales moving down while fixed costs stayed, well, fixed. Still, that's not bad compared to other transportation specialists. Best-of-breed Japanese automakers like Nissan
A strong brand is a very valuable asset in uncertain times, and Harley-Davidson's got it in spades. With a fresh CEO steering the ship and the usual battery of cost-savings initiatives under way, I think Harley will survive this recession and come out on the other side with engines roaring.
Let's end this week's journey in the financial district. Capital One Financial
The credit card expert reported a $3.74 loss per share on a piddling $3.2 billion in total revenue. Ouch.
That includes $811 million of goodwill impairment charges for its auto finance division, as car sales have stopped on a dime. Looking ahead, Capital One set aside $1 billion in allowances for loan losses, "in anticipation of increasing charge-offs in 2009." Its loan loss allowance is up to 4.5% of reported loans, up from 3.6% in the previous quarter.
"We expect that the recession will continue to impact our results throughout 2009," said CEO Richard Fairbank. Thanks for that peek into your crystal ball, Richard. But that doesn't make me like your business or your stock any better. All-star CAPS player mysoftballcoach says it all in 14 Hemingway-esque words: "Too much credit card and auto finance exposure. Many more painful months to come." I couldn't agree more.
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Fool contributor Anders Bylund owns depositary shares of Nissan (and a 2002 Maxima), but he holds no other position in the companies discussed this week. The Fool has an ironclad disclosure policy, and you can see his current holdings for yourself.