(By Rich Bieglmeier) It all comes down to two stocks as buy candidates from this week's sector performance analysis. Although, it is hard to ignore a third, City Telecom HK Ltd.
) and its nearly 18% dividend.
However, after reviewing all the stock charts from the constituents for our emerging and mature bull sectors, the two stocks that interest us the most are Iridium Communications Inc.
) and NTELOS Holdings Corp.
Of the pair, our favorite at this moment is Iridium Communications Inc. (IRDM). The provider of mobile voice and data communications services recently retreated from its 52-week high to test support at $8.50. On a positive note, almost the entire drop occurred on declining volume, which means those interested in selling could have been satiated.
IRDM's stock chart says that its price could be getting healthier and in the process of moving back to the year high of $9.73, which is roughly 7% higher than today's price. iStock would suggest a stop in the neighborhood of $8.30 to protect our downside.
As we are prone to do, the first fundamental check is to compare the company's forward P/E to analysts' projected earnings growth. iStock wants to have room for hiccups; so, we like to buy at a discount. Iridium trades at a 160% markdown on a forward P/E to forecasted profit growth basis. Its forward P/E is 9.06, and the Street believes eps will swell by 23.50%.
The discrepancy shows up and is illustrated by a PEG Ratio of just 0.84; meanwhile, the average company in the industry trades with a PEG Ratio of 1.28. To catch up to its peers, IRDM would have to increase by 52.3% in price. We will take it – no?
The company's trailing P/E is also reduced standing at 15.39 versus the peer group ratio of 17.15 times earnings. All the while, Iridium sports operating margins that are twice the average competitor. You would think higher margins would warrant at least on par valuations.
Investors are treated to a third discount, which makes the communications a value and growth play simultaneously. The stock trades for around $9 while its book value is $9.77, an 8.3% concession.
Shares could get a boost this Thursday when 2nd quarter earnings are released before the market opens.
Wall Street expects profits of 20 cents per share – the iEstimate is 22 cents. There could be room for more as the highest Wall Street estimate is 34 cents.
The stock has a strong history of performance in the days surrounding earnings. In the last two years, the price has rallied five times, from 5.1% to 17.5%, once shares remained flat, and twice IRDM fell 12.8% and 9.6%.
If earnings come in hot and management offers robust guidance, then we believe Iridium Communications Inc. (IRDM) could challenge its 52-week high this week. Long-term, iStock is putting a 12 month price target of $12 and an 18 month target of $15 on IRDM.