With earnings season in full-swing, and with countless large moving stocks, I am looking at four companies that reported earnings on Wednesday that I believe are a “buy,” regardless of the stock’s initial reaction.
An Under-the-Radar Stock to Watch
Mueller Water Products, Inc. (NYSE:MWA) saw gains of more than 13% after the company announced earnings that handily beat expectations. The company experienced sales growth of 12.6% year-over-year (yoy) and swung from a net loss of $0.70 per share to a profit of $0.05. The company saw a 21.70% boost in the shipment volume of valves, hydrants, and brass products, thus pushing its operating margins higher by 670 basis points.
A Big Miss by the Numbers but a Huge Beat by the Valuation
Questcor Pharmaceuticals Inc (NASDAQ:QCOR) opened on Wednesday with losses of about 3%, but eventually rallied to trade near flat. The company reported earnings that missed expectations by a wide margin. However, the company still saw top-line growth of 41% and when compared to its valuation the stock is very cheap.
Questcor Pharmaceuticals Inc (NASDAQ:QCOR) is trading at just 6 times next year’s earnings, yet has 40% growth. In biotechnology, ratios such as this don’t exist, and when you combine the fact that QCOR pays an annual yield of more than 3% and is buying back its own stock, I am not sure how the stock Is not a buy.
A Controversial Energy Play With Strong Fundamental Improvements
After Chesapeake Energy Corporation (NYSE:CHK) announced its earnings report the stock initially shot higher by 4%, but has since fallen 2% as fears regarding its asset sale and liquidity position resurfaced. While these fears are a reason for concern, I was highly impressed with the company’s quarter, especially considering the volatility of energy at this point in time.
I liked its 9% rise in total production, the lowered guidance on operating expenses, and the fact that Chesapeake Energy Corporation (NYSE:CHK) still has the greatest collection of energy assets in the U.S. So far the company has sold $2 billion of assets with $5 billion left to reach its target. I think the company is improving and with it trading at just 10.0 times next year’s earnings I think CHK is a “Buy” on the post-earnings weakness.
Conclusion
“Buy stocks after earnings, but do so in a way that feels almost unnatural: Read the report first, and look at the stock second. Then, you can locate the inconsistencies and the illogical differences between fundamentals and trade.” Taking Charge With Value Investing (McGraw-Hill, 2013)
Each of the companies above is by some accounts “controversial”. All have seen volatile periods in performance but the progress seen in the quarters of each company has lead me to be optimistic of the future. While there is no way to predict short-term trading performance, I do believe that each company could very well trade higher over the long-term following strong quarterly performances.
Brian Nichols has no position in any stocks mentioned. The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy.
The article Three “Buys” After Reporting Earnings on Wednesday originally appeared on Fool.com.
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