More Debt-Fueled Spending on Wall Street

Posted: May 29, 2013 12:01 AM

Stocks in the News is produced by Ransom Notes Radio and Goodfellow, LLC. Crista Huff manages Goodfellow LLC, a website that recommends outperforming stocks using fundamental and technical analysis.   

Stock number one is: 

Valeant Pharmaceuticals International Inc. , (SYMBOL: VRX) and the headline says:

Valeant’s Bausch & Lomb Buy Another Debt-Fueled Deal – The Wall Street Journal

Valeant Pharmaceuticals, Canada’s largest drugmaker, has agreed to buy privately-held eye-care company Bausch & Lomb Holdings Inc. for $8.7 billion.  The deal will be financed by the issuance of new equity and debt.  Valeant’s long-term debt ratio was already high at 56%.

Valeant is a rapidly growing specialty drugmaker, in the areas of dermatology, neurology and ophthalmology.

On April 29, we recommended that investors buy Valeant Pharmaceuticals, and the stock has since risen 21%.  Despite projected earnings growth of 26% this year, and a PE of 16.2, we believe the company’s high debt levels warrant investor caution.

Our Ransom Note trendline says:  STAY ON THE SIDELINES.

VRX Chart

VRX data by YCharts

Stock number two is: 

Tiffany & Company , (SYMBOL: TIF) and the headline says:

First Quarter Earnings Shines Bright Like a Diamond – Citi Research

Luxury jewelry retailer Tiffany & Company reported first quarter earnings of 70 cents, blowing away Wall Street’s 53 cent estimate.  Quarterly sales surged in all global markets, with additional improvements in gross profit, interest expense and taxes. Full-year earnings guidance from Tiffany remains very conservative.

The company expects earnings to grow 7% this year, but continued upside surprises could put that number closer to 12%.  The dividend yield is 1.68% and the PE is 21.9.

The stock has been trading between $50 and $84 for two-and-a-half years.  After climbing 41% year-to-date, watch for the stock to rest in the near-term while it trades in the $69 to $80 area.

Our Ransom Note trendline says: HOLD  TIFFANY & COMPANY.

TIF Chart

TIF data by YCharts

Stock number three is:

Williams-Sonoma Inc. , (SYMBOL: WSM) and the headline says:

Williams-Sonoma Jumps as Quarterly Profit Beats Estimates -- Bloomberg

Home goods retailer Williams-Sonoma Inc., which also owns Pottery Barn and West Elm, reported a strong quarter, a new $750 million stock buyback program and a 41% dividend increase.  The company is also promoting a division president to lead Williams-Sonoma as its new president.

First quarter earnings came in at $1.34 vs. the consensus estimate of $1.28.  Full year earnings are expected to grow 7% this year.  The PE is 20.3.  The new dividend yield is 2.2%.

The stock broke past long-term resistance last fall, and is currently trading in the low-to-mid $50’s.

Our Ransom Note trendline says:  HOLD WILLIAMS-SONOMA.

WSM Chart

WSM data by YCharts