by Marc Bastow | August 1, 2012 11:30 am
Summer is just about halfway done, and what better time than the dog days — where you’re usually better off as a spectator — to kick back and just observe the playing field?
The field at hand is our Real America Index, our group of stocks taking the pulse of the American economy. And it’s a little early to pick on some of the laggards in the RAI — after all, it has only been about six weeks since the gang got together — but a number of stocks have been on the ropes, whether through their own issues or just being dragged down thanks to the drumbeat of mixed messages from Europe and choppy economic waters here at home.
But that’s no reason to fret. In fact, these four names — while struggling a bit — still have the fundamental strengths they need to get up off the floor for the remainder of the year:
It’s a little hard to imagine how health insurance giant Humana (NYSE:HUM) can make it to this list given the industry’s relative stability and long-term moxie. But, here we are, with the RAI representative from Kentucky down 30% on the year.
What went wrong? Well, the upholding of the Affordable Health Care Act was seen as generally negative for providers in the short term. Earnings and revenues are just not cutting it at this point, either. Humana just reported weaker second-quarter earnings due primarily to a recent legal settlement, and HUM also cut its full-year forecast because of high costs for both new and existing customers on Medicare plans.
Humana generates three-quarters of sales from Medicare, so missing the boat on expenses in the system is a bit of a mistake, particularly since competitor UnitedHealth Group (NYSE:UNH) recently raised its profit outlook for the remainder of the year.
I wouldn’t panic. “Obamacare” will be phased in over time, and as new patients are moved into the system, Humana will start adjusting its prices and benefits beginning in 2013, looking to get back to its 5% profit margins and grow earnings by about 7% by the end of next year. Once the pricing system is in place and running at a normal clip, Humana should benefit nicely from the new law.
Nebraska-based ConAgra (NYSE:CAG) is down about 7% this year, vs. broader-market gains of 10%. In June, ConAgra declared a loss from continuing operations of 21 cents per share for the fourth quarter of fiscal 2012. But an accounting change had an impact on results, and sales growth actually was at 6.3%, beating analyst estimates.
For now, times are a bit tough as weak jobs data, an unhappy and slightly confused market and weak consumer confidence are putting pressure not just on ConAgra but the entire packaged goods industry, including Kraft (NASDAQ:KFT) and General Mills (NYSE:GIS).
However, ConAgra predicts it will grow earnings for fiscal 2013 as it continues to buy into more private-label brands and expand its offerings. In the past year alone, CAG has added well-known names like Del Monte Canada, Odom’s Tennessee Pride, National Pretzel and Kangaroo Brands pita chips, as well as its most recent acquisition — the Bertolli and P.F. Chang’s brands, which it bought from Unilever (NYSE:UL) for $265 million.
Analysts seem to agree, clocking expected earnings growth at roughly 7% for the next couple years.
In the meantime, investors currently get 24 cents a quarter in dividends, currently good for a nearly 4% yield — and CAG has reliably upped its payout at the end of each of the past three years, meaning income-hunters could be in for a holiday treat.
Low natural gas prices have hampered even the big boys, such as diversified Exxon Mobil (NYSE:XOM), so Oklahoma-based Devon Energy (NYSE:DVN) absorbing a 7% year-to-date loss shouldn’t be much of a surprise.
Devon, which is involved in the exploration, development and production of oil, natural gas and natural gas liquids, is being squeezed by the commodity’s glut. The price of natural gas liquids — which include ethane and propane — dropped because of increased supplies and a warmer-than-normal winter, particularly in the Northeast and Middle Atlantic states.
The proof is in the pudding. DVN’s second-quarter earnings dropped almost 80% to $477 million, and adjusted earnings of 55 cents per share came in well short of analyst forecasts of 81 cents.
Still, there’s a few reasons to take heart. For one, 2011’s net earnings got a huge boost from a one-time $2.5 billion asset sale in Brazil, accounting for the huge gap down in 2012. Plus, this year’s Q2 revenues of $2.56 billion surprised to the upside. Best of all, natural gas prices have surged by roughly 70% in recent months.
While Devon is expected to take a huge step back this year, earnings growth is expected to rebound by more than 30% in the next fiscal year. That should help put some more giddy-up in this Sooner’s steps.
Florida’s Carnival Corp. (NYSE:CCL) isn’t having quite the same difficulties of some our other Real America Index companies, but it’s not exactly thriving. CCL is up just 2% vs. the S&P’s 10%, and with weak second-quarter earnings — down 93% from last year — it could be rough seas ahead for the remainder of the year.
Carnival’s balance sheet still is feeling the backlash of January’s Costa Concordia crash off the coast of Italy, which claimed at least 25 lives. In fact, the entire industry, including rival Royal Caribbean (NYSE:RCL) still is feeling ripples from the incident — it might just take some time for customers to get back on board.
However, Carnival is making an effort to ramp up its marketing efforts, including adding new cruise packages to Europe this year and Alaska in 2013 through its Holland America Line. Fuel costs should be coming down to help with margins, and consumers are perhaps finally finding some discretionary funds in their accounts to take that long-awaited cruise vacation.
Still, CCL’s stock has proven resilient, actually up roughly 15% since its post-crash lows, and only off about 2% since the crummy Q2 report. The bottom line? Investors might be rewarded for braving this stock’s rocky waters — and they can get in at a 3% dividend yield.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities.
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