Let’s get day 2 of stock picking week underway with two more picks.
Bull Pick – Finisar (FNSR)
This isn’t a widely known company, but learn it because it likely will be one day. The stock has more than doubled already this year, but there is much more elevation left in the shares. First of all, Finisar is a networking company that specializes in fiber optics. This was a red hot space in 1999, but judging by the stock performance, the heat is back.
The stock has been on fire ever since it reported an outstanding second-quarter earnings report in early September. Sales soared over 61% over last year and it was a record for both revenues and net income from operations. Gross margins continued their trend of expanding, which is a huge plus in the eyes of investors.
Finisar certainly isn’t as cheap as it was a few months ago, but it isn’t expensive either given its growth prospects. The shares are changing hands at 15.7x next year’s estimate of $1.35 per share. Of course this estimate was dramatically raised from 97 cents 60 days ago. There is still some time before the company reports earnings on December 1, but I would venture a guess that it will be another impressive performance. I think $25 is right around the corner.
Bear Pick – General Electric (GE)
It would have been blasphemy to say anything negative about GE in the past. It’s amazing how times have changed. It just seems like the company has been stuck in the mud for most of CEO Jeff Immelt’s tenure. Of course he did follow in the footsteps of a living legend in Jack Welch, but things haven’t been the same since he left.
The latest blemish was the company’s third-quarter earnings report in which revenues came in below analyst projections mostly due to weak demand for its jets and other heavy equipment. Profits fell 11% from a year ago, as the weak economy continues to hurt the conglomerate. GE Capital did show improvement, which is a good sign since this one unit almost brought GE to its knees.
I don’t think that the shares will outperform as the 5% drop was an immediate glimpse into investors’ reactions. The most worrisome piece of news from the report was the weakness in the core industrial businesses. With the economy still struggling to get off the ground, this segment will continue to languish. That doesn’t spell gains for shareholders. Don’t get me wrong, the company is still excellent and will dominate industries, but it will likely be dead money for a long time to come.
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