Wednesday Losers: American Eagle, USEC and Tivo

Among the biggest losers in Wednesday’s early trading are American Eagle (NYSE: AEO), USEC (NYSE: USU) and Tivo (Nasdaq: TIVO).

Top Percentage Losers — Wednesday, May 26, 2010
Company Name (Ticker) Intra-Day Price Intra-Day
% Loss
52-Week High 52-Week Low
American Eagle
$13.52 -12.1% $19.86 $12.56
USEC (NYSE: USU) $4.93 -6.3% $6.52 $3.22
Tivo (Nasdaq: TIVO) $8.76 4.3% $18.93 $6.41

*Table includes companies with minimum market capitalizations of $200 million and three month trading volumes of at least 100,000 shares. All percentage returns are listed as of 11:27AM Eastern Standard Time. Click on ticker symbols for up-to-the-minute price quotes and percentage gain data.

Teen Spending Under Pressure

We noted the poor quarterly results out of teen-focused retailer Hot Topic (Nasdaq: HOTT), last week. Many teens are likely going to browse rather than buy if forecasts of a lousy summer hiring season prove out. American Eagle Outfitters (NYSE: AEO) issued quarterly guidance this morning that underscores the ongoing struggles in this retail niche. The downbeat view is pushing shares down more than -12% in Wednesday trading.

#-ad_banner-#American Eagle notes that margin pressures should cause it to miss second quarter earnings forecasts. “Margin pressures” is a retailer’s way of saying that heavy discounting will be needed to move the merchandise and meet sales plans. Pacific Sunwear (Nasdaq: PSUN) also recently predicted that second-quarter results would be lower than forecasts.

All three of these retailers also have to deal with a resurgent Aeropostale (NYSE: ARO), the only name in the group with real momentum. If teens are spending anywhere right now, it’s at Aeropostale. Yet despite a nice move in shares, they still trade for just 10 times projected 2010 profits. That multiple is likely being restrained by overall teen spending concerns.

Action to Take –> Maybe the back-to-school season will hold better news for these beleaguered retailers. There’s no need to load up on their beaten down shares right now. But Aeropostale, which has built up an impressive multi-year track record, looks appealing due to a combo of high growth and reasonable value. When investors rotate back into retail stocks, this looks to be one of the better performers.


Tivo Slumps Further

Adding insult to injury, Tivo (Nasdaq: TIVO) reported disappointing quarterly results after Tuesday’s close, just days after being dealt a legal setback. Sales in the first fiscal quarter rose +11% from a year ago but are still not high enough for the company to achieve profitability. The weak quarterly results are pushing shares down another -4% in Wednesday trading. The maker of its eponymously-named digital video recorders is being squeezed from both ends. Other manufacturers are gaining market share, and the company’s strategy of securing royalties for its technology is also not panning out. At least not yet. Management predicts that the company will ultimately prevail in a lawsuit against Dish Networks (Nasdaq: DISH).

The lawsuit will go to trial later this year, and it’s make-or-break for the company, as it will set the tone for other royalty relationships. If Tivo prevails, as management expects, then shares could quickly move back into the upper teens, as was the case in early March when the company initially appeared to be in a strong legal position.

Action to Take –> There’s no need to bottom-fish shares here. Instead, you should closely monitor legal developments this summer. If it increasingly looks as if Tivo will prevail in its lawsuit, investors can make solid gains in this name.


USEC: Opportunity in profit-taking

Shares of USEC (NYSE: USU) are falling more than -6% in an otherwise robust market, as momentum investors that piled into the stock Tuesday are rushing out today. Good news had pushed shares up nearly +20% Tuesday, but investors are often better off avoiding a very hot stock on an intra-day basis. But today’s sell-off is precisely when you should be looking at a name like USEC. As we noted Tuesday, the company secured a significant investment and looks set to post solid growth in the coming years on the heels of an increasingly likely revival for domestic nuclear power. Part of the problem is that USEC is not heavily followed on the street, so shares were unable to receive support from positive analyst chatter. But a lack of analyst support may only be a matter of time as investment banks focus more squarely on potential winners in the nuclear industry space.

Action to Take –> USEC is expected to show big profit gains in coming years, and today’s sell-off makes the price-to-earnings ratio (P/E) even more reasonable. Now that the dust has settled on Tuesday’s momentum trade, feel free to jump in.