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The Apple/Samsung fallout
The Apple juggernaut continues. A key legal verdict handed down this weekend found that South Korea's Samsung (Nasdaq: SSNLF) infringed on patents. The ruling helps Apple in two ways. First, it adds another $1 billion to its balance sheet (subject to appeal). More important, it makes it harder for rivals to mimic the look and feel of Apple's various devices. Shares of Apple are up more than 2% on the news, to another all-time high.
In this piece written back in June, I laid out a case for more upside for Apple, and though we're closer to the end than the beginning of this great multi-year move in the stock price, it's not time to harvest profits yet.
The ruling is an obvious setback for Samsung, but investors need to watch for fallout among other smartphone players such as Google (Nasdaq: GOOG). That firm's Android operating system certainly seems a lot like the iPhone's operating system. Apple has yet to formally pursue a legal challenge with Google (perhaps because Google's hardware partners make the profits on the devices), but you need to watch these events closely.
Yet a possible winner (besides Apple) is emerging from the dust-up. Seemingly back from the dead, shares of Nokia are rallying 9% this morning. Apple is seeking to keep any Samsung phones that use Apple patents off the market in the United States, and if successful, could create an opening for Nokia's Lumia phones, which is based on Microsoft's tile-based software and is radically different from the Apple interface.
I highlighted the opportunity for Nokia back in early March, though it eventually became clear that Nokia's phones got off to a slow start. Shares slumped to decade lows this summer on lingering concerns that Nokia's ongoing losses will eventually imperil its balance sheet. Still, you have to be impressed by the nearly 100% gain in this stock since July 20. Either way, this is a high-risk/high-reward play requiring further research.
Forget Hertz, buy Avis
After several years of wrangling, car rental firms Hertz (NYSE: HTZ) and Dollar Thrifty (NYSE: DTG) will finally tie the knot. Hertz will pay $2.6 billion, which represents only a small premium to Friday's closing price for Dollar Thrifty. The deal had already been widely anticipated and largely priced in.
Yet the real winner here appears to be Avis, which is rallying 5% on the news, but likely has ample more long-term upside. That's because the car rental industry has periodically suffered from profit-sapping price wars. Yet as Hertz starts to streamline to absorb Dollar Thrifty, look for some of the extra rental car counters to shut down. And reduced capacity almost always leads to firmer pricing.
More broadly, Avis is in the midst of a multi-year turnaround, led by an October 2011 purchase of Avis Europe. With all of the Avis global franchises under one roof, management is embarking on cost-cutting actions while pursuing relationships with multinational customers that want to work with one vendor across the globe -- a task that only Hertz used to be able to handle. Those efforts are already reaping fruit as Avis topped second-quarter profit forecasts by a hefty 34% on Aug 1. Shares appear reasonably priced at less than seven times projected 2012 profits.
Tiffany: Not bad = good
Investors were expecting a dowdy profit report from high-end retailer Tiffany & Co. (NYSE: TIF). After all, it's been a summer of discontent across Europe, which is a key market for the company's various baubles. So the fact that same-store sales in the quarter ended July 31 fell just 1%, not nearly as bad as some had feared, is cause for cheer. In this case, "not bad" can be seen as good news. It underscores what the company's supporters believe is a solid spending environment among the upper-income set.
Shares are up about 5% this morning, but are still some 25% off the 52-week high of $80 seen in October 2011. Surely, even the well-heeled are feeling a bit cautious, so when the fear of a global economic meltdown finally recedes, these folks may really spend in a big way. Tiffany & Co. is holding up well now, and should do even better down the road.
Action to Take --> While everybody is talking about Apple today, you should be looking at Avis. This company stands to benefit from both industry consolidation and internal cost-cutting. The current single-digit multiple is based on depressed profits, as the global economy remains in a funk. Shares are even more inexpensive when you consider what profits may look like in a few years, when the global economy is healthier.