A Trio of Turnarounds
04/08/2005 12:00 am EST
In his exciting Advantage Bulletin trading service, Elliott Gue looks at three well-known "brand name" companies that for various reasons have gone through difficult times. For each - Sony, Tiffany, and Revlon - he speculates that better times may be ahead.
"Sony (SNE NYSE) is best known as a consumer electronics company, having invented such blockbuster products as the Walkman (1979), the first CD player (1982) and the Playstation (1994). In addition, it owns a well-known music label and has sought to expand into other areas such as entertainment. Last year, the company bought Metro-Goldwyn-Mayer for $5 billion. While Sony certainly has key brands in many categories, the company has been having some troubles in recent years, with cutthroat competition in the US for products like TVs and stereos. Sony has recognized these issues and took the drastic step of promoting an American CEO in early March. This is almost unheard of in Japanese firms. Technically, Sony's stock reacted well to the appointment. The stock just completed a head-and-shoulders bottoming pattern that projects to the 50 area. A move well above that level is possible if Sony's recovery takes hold.
"Tiffany & Co. (TIF NYSE) has been sliding since late 2003 when it was trading at about $50. One reason for this has been rising costs, a symptom of increasing prices for gold, silver, and diamonds. Also, sales in Japan, a key market for Tiffany, have been lagging. But the worst is behind Tiffany. Sales in the US remain strong, and sales in Japan may re-accelerate this year. Longer-term, key fast-growing markets elsewhere in Asia may also become more important for the luxury goods retailers like Tiffany. The company recently endorsed guidance for 2005 and instituted a major stock buyback program. Technically, Tiffany broke a year-long downtrend in early November and proceeded to base until last week. The stock reacted very positively to a major stock buyback announcement, rallying through resistance at 32.50 on strong volume The stock is a buy under 35, with a target of 35 within 6 to 12 months.
"Revlon (REV NYSE) is a worldwide leader in cosmetics, but over the years, the firm hasn't managed to put its cost structure in order. Its credit rating has also slipped into junk territory due to the big debt level and unsatisfactory operational performance. However, its latest bond issue was oversubscribed. The stock is favorably responding to that as bondholders have kicked the tires and think they can pay the debt with 2011 maturity. Revlon has been a penny stock for quite a few years now, due to heavy debt levels, non-existent profitability, and eroding market share. The stock has had more than one false comeback in the last five years, but there are signs that this time may be different. There are no guarantees here, and a stop loss is suggested. Technically, there's something very interesting going on with the Revlon stock, which a retest of major resistance near 3.50 to 3.60. A trade above that level that sticks could mean a major breakout. Again, this as a speculative position because it's a depressed equity with no earnings. Buy below 3 for an estimated holding period of 6 to 12 months."