Wall Street doesn't get things right all the time. Heck, it's actually pretty lousy at making any sort of prediction. Yet so many investors follow the advice of these experts, when the best idea might actually be to go in the opposite direction.
So we asked a few of our analysts to highlight a stock they each thought was getting some undeserved hatred from Wall Street recently, and why they think those experts are wrong. Here is what they had to say:
While a lot of short-seller-pushed misinformation hurt the stock in late 2013 and early 2014, the collapse of oil has been the biggest culprit since last summer, sending gasoline and diesel prices plummeting:
This has hurt the stock, because Clean Energy Fuels' business is building stations and selling natural gas for transportation applications, meaning gas and diesel are its "competition."
However, Mr. Market has ignored this:
Natural gas has fallen even further than oil-based fuels. There are other costs that factor into the pump price, but natural gas has retained its price advantage, and Clean Energy's refueling business has continued to grow. The company has increased gallons delivered around 20% per year for the past five years, and actually saw fuel sales accelerate last quarter, even as oil was plummeting.
Since the company has been cash flow negative for the past several years after spending big on expansion, I've kept a conservative approach. But we could see it cash flow positive by the end of the year, a huge step forward. You'd be well served to think about buying shares before Mr. Market falls back in love.
Steve Heller: One look at General Electric's (NYSE: GE) five-year stock performance and it becomes clear that Wall Street hasn't had much love for the industrial conglomerate. However, despite its underperformance relative to the S&P 500, there is still much to love about GE, a company in the midst of a massive transition.
Since the financial crisis, GE has taken considerable measures to reduce its reliance on its financial services business, GE Capital, in order to become a more streamlined industrial manufacturing heavyweight that isn't as exposed to major financial shocks.
By the end of this year, GE is aiming for only 25% of its operating earnings to be generated by GE Capital -- an ambitious goal, considering 42% of its operating earnings were tied to GE Capital last year.
To meet this goal, GE recently announced a deal worth up to $26.5 billion to sell the majority of its GE Capital real estate assets to BlackRock, Wells Fargo, and other unknown parties.
Alongside this deal, GE also detailed its plans to exchange the remainder of its Synchrony Financial stake by the end of 2015, and said that it will only retain the parts of GE Capital that support its core healthcare, aviation, and energy segments.
In other words, GE is effectively exiting the traditional financing business in the coming years -- except in areas that support the growth of its industrial businesses.
By 2018, these combined initiatives are expected to reduce GE Capital's operating earnings to 10% of the company's total operating earnings, and should allow for GE to return in excess of $90 billion to shareholders between a combination of dividends, buybacks, and share exchanges.
Additionally, if GE successfully reduces its exposure to GE Capital to represent only 10% of its 2018 operating earnings, it paves the way for the company to de-designate itself as a systemically important financial institution, meaning it would no longer be a "too big to fail" institution from a regulatory perspective.
Ultimately, the further that GE distances itself from its GE Capital glory days, the more it can focus on reclaiming its status as an industrial powerhouse -- a title that's been difficult for investors to see in recent years.
Despite the massive drop in share price, I'm still hanging on to my shares and foresee much better times ahead for this oil services company. Core Labs does one thing better than almost any other company in the entire oil industry: convert its sales into free cash flow. The company's levered free cash flow margin of 20% puts it well above any of its peers in the oil services space, and the flexibility of having that much excess cash means the company can do a bunch of shareholder-friendly things, such as buy back shares. Since 2002 when management made the decision to start buying back shares, Core has reduced its share count by more than a third.
With oil at bargain-basement prices and exploration work that would require some of Core's services not in high demand right now, it's understandable if earnings these next few quarters don't wow anyone. However, when you factor in the long-term demand for oil and the need for Core's services to increase well productivity on expensive, risky projects, the future for Core looks very bright, and I'm unashamed to say that I'm adding to my position when I can while shares are depressed.