Scott S. from Evanston wants to know my opinion of Peapod (PPOD). The Chicago based web- retailer of groceries is hovering around $1.75 a share after narrowly escaping from bankruptcy with an equity infusion from a giant Dutch company. Unfortunately, PPOD recently missed their earnings this August, reporting a net loss of $10.4 million or $0.58 cents per share. Zacks expected PPOD to lose only $0.28 cents per share. Generally, when a company misses its estimates - sell it. Maybe the stock will rebound, maybe there is some value there. Yeah, and maybe if you put on a Superman suit and jump from the Sears Tower you can fly. PPOD is facing enormous pressure from West coast venture capitalists and WebVan. The only thing going for PPOD is that the service is actually a good value. Companies that miss their earnings estimates and report a negative earnings surprise are usually weak for the next couple of months following their earnings report. This has been demonstrated statistically in numerous of academic papers. In my opinion, you would do better investing in an S&P 500 index fund than PPOD over the next couple of months.
Maggie M. from Chicago wrote in, wanting to know what to do with her Iridium shares (IRIDQ). Iridium declared bankruptcy, and the stock of the Motorola joint venture is trading at 43 cents a share on the OTC bulletin board. Let's see, this is a toughie... either go out and spend fifty cents and buy a bagel or spend 43 cents and get a share of Iridium. The satellites Iridium put into low earth orbit have one way to go: down. The same can be said of the stock. If there existed any possible way to prevent bankruptcy for Iridium, Motorola would have found it. This stock, the company, and several tons of metal orbiting the earth are all toast. Sell immediately!
Mcamper1955, I am guessing that this is not his real name, wrote in asking what I thought of SBC Communications (SBC). If you go to the Zacks website and look up a histogram of recent earnings estimates for SBC, you will see that for the fiscal year ending in December of 2000, the most recent analyst estimates are coming in about at the middle of the analyst pack. This essentially means that the most recent analyst reports do not contain positive or negative information. My suggestion is to hold the stock in the short- term. Generally, you want to buy stocks that are experiencing positive earnings estimate revisions. SBC is receiving neither upward nor downward estimate revisions, so I would remain neutral on the stock.
Allan W. wrote in asking about Finova Group (FNV). Wall Street research recommendations are not very useful. It is often more important to watch for changes in recommendations as opposed to the recommendations themselves. For instance, I am more interested in a stock whose consensus recommendation is a "moderate buy" that recently had a brokerage firm upgrade from a "hold" to a "strong buy" than I am in a stock whose consensus recommendation is a "strong buy." You see, the change in the recommendation is far more informative, as it provides new information to the market. A consensus recommendation level is usually already reflected in the stock price. That being said, the consensus recommendation has been proven to have some value. When I pulled up FNV on our website and looked at the detailed recommendations, I found that out of the nine brokerage firms following the stock, six of them have it rated a "hold." Considering that less than 1% of all recommendations are "sell," the fact that almost all the brokerage firms following the stock recommend a "hold" is essentially Wall Street's way of telling you that if you have not dumped the shares, you should soon. Although the company trades at a forward P/E of around 3.5, there is a reason for the low valuation.
Diane S. wrote in, asking whether to "buy," "sell," or "hold" GE. Although GE is by no means cheap, I am willing to pay up for the stock. "Strong buy." I like the fact that looking at GE's projected earnings I do not see a lot of dispersion among analysts' earnings estimates. There is also strong earnings growth historically, and the historical earnings growth of 13.2% per years is projected to accelerate to 14.5% over the next five years. Additionally, the company has a history of meeting estimates, and to top things off, earnings estimates have recently been revised upwards. The only thing I do not like about the company is its P/E of around 47 times future earnings. The high valuation level is not surprising, though, as the market provides no free lunches.