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Wed, February 18, 2009
Zacks Bull & Bear of the Day Highlights: Avon Products, Telmex, Citigroup, Bank of America and JP Morgan
CHICAGO--([ BUSINESS WIRE ])--Zacks Equity Research picks Avon Products (NYSE: [ AVP ]) as Bull of the Day and Telmex (NYSE: TMX) as Bear of the Day. In addition, the analysts at Zacks Equity Research discuss the latest on Citigroup (NYSE: [ C ]), Bank of America (NYSE: [ BAC ]) and JP Morgan (NYSE: [ JPM ]).
Full analysis of all these stocks is available at: [ http://at.zacks.com/?id=2678 ]
Bull of the Day
Avon Products (NYSE: [ AVP ]) is benefiting from both the expansion into the developing and emerging markets and its emphasis on the Beauty products portfolio. Management aims to achieve high single-digit local [ currency ] revenue growth supported by margin expansion over the long term.
Over $200 million in costs [ savings ] have been achieved since 2002 by implementing the multi-year supply chain cost reduction program. Management expects to achieve cost savings of an additional $300 million in savings as the company implements ERP in Europe and North America.
Developing and emerging markets contribute over 50% of total sales. Management expects the contribution to expand to 68% over the coming 10 years as high-growth opportunities are pursued in developing markets. India, Central and Eastern Europe, China, Russia, and Latin America are highlighted as high growth areas.
Bear of the Day
We are reiterating our Sell recommendation on Telmex (NYSE: TMX). The competition in the Mexican market has been increasing, mainly from wireless companies and VoIP providers.
Telmex continues to experience endless price erosion. Fourth quarter 2008 results were weak and the current economic situation is not encouraging at all.
The global credit crunch and the recession in the U.S. are a source of great concern, since Mexico and the U.S. have strong economic ties. Lastly, Telmex's valuation seems excessive if compared to other Latin American operators.
Recent Analysis from the Analyst Blog
2 Goals of the Banking Bailout System
Since money is fungible [to be freely exchangeable], it is very hard to track exactly what the banks did with exactly the dollars that the government injected into them. However, we do know that they continued to spend money on a wide variety of very wasteful things, such as billions in bonuses for mid- to high-level executives (the C-level folks largely skipped their bonuses) and expensive junkets for "employee recognition." Some of those were cancelled when they came to light and the public was outraged.
Others have been clamoring for regulatory forbearance and a suspension of the mark-to-market rules for banks. Japan tried this, and it ended up with a bunch of Zombie banks, still apparently alive but unable to really perform the functions a modern economy needs its banks to perform. We also went down that path with the S&L's in the 1980's and the problems simply got worse and worse, and greatly increased the cost of the eventual bailout.
However, that is not the worst thing about these proposals. They are proposing that the banks be allowed to knowingly lie to investors about the condition of the assets that they hold. There is a term for that, and the term is "securities fraud." Why would anyone invest in a company where they knew that the books belonged on the fiction shelf? We need more transparency in the banking system, not to have it cloaked in secrecy like the most sensitive Pentagon projects.
To my mind, the best approach is to do what the first round of the TARP did, but do it right. That means that the government should get full value for its investments in the banking system, just as if it were a private investor. For $300 billion, at current market prices the government could own virtually the entire U.S. banking system. No, that doesn't mean that it would own all 7,500 banks in the U.S. Most of the banks are too small to really matter.
We have allowed a handful of "too big to fail" institutions to dominate most of the banking system. If the Government were to inject capital worth the current market capitalization of Citigroup (NYSE: [ C ]), Bank of America (NYSE: [ BAC ]) and JP Morgan (NYSE: [ JPM ]), it would have a 50%+ stake (not counting its interest in the banks from TARP 1.0) in all of them for a cost of $186.8 billion, which is significantly less than it spent under TARP 1.0. To get to $300 billion, one could also get most of the other substantial players in the financial system
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About the Bull and Bear of the Day
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
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