Revisiting Some Past Calls

Over the last few weeks and months, I've made several recommendations -- and, in my view, it warrants revisiting those from time to time in order to see if we should hold the course, trim or exit the position. Good or bad, what I'm talking about here is trade analysis, combined with what the latest data, be they economic- and industry-related or from the company itself in or from one of its competitors. Taken together, these data can all help us decide the next course of action. This routine exercise seems rather timely at the moment, given that it's earnings season, so let's take a look at GNC (GNC), Trinity Industries (TRN) and AOL (AOL). I wrote up GNC shares favorably a month ago, when the stock was at $34, given the growing consumption of vitamins and nutritional supplements as demographics continue to skew older. This week management again upped the company's 2012 expectations: They now see revenue of $2.37 billion for 2012, up 14.5% from last year, compared with the previous expectation of a 10% increase. Earnings per share is now forecasted by management to be $2.05 a share, up 35% from 2011, and higher than the previous $1.82 forecast. Despite the share-price jump to $40, which had been my price target, the upward revision in 2012 guidance, along with the favorable fundamentals, has me raising my price target to $45 on GNC shares. Also this week, railcar manufacturer Trinity Industries reported its March quarter results, which met expectations on revenue and crushed expectations on EPS, reinforcing the company's operating leverage in the railcar-manufacturing business. Trinity reported revenue of $925.3 million for the quarter, beating the S&P Capital IQ consensus of $920.3, and comparing with $644 million in the year-ago quarter. One of the key metrics I am watching at Trinity is its railcar backlog, given the results at Greenbrier Cos. (GBX), another railcar manufacturer. Exiting March, Trinity's backlog continued to climb sequentially in dollar terms, but the number of units in its backlog fell modestly quarter over quarter. The value of the Rail Group backlog remained stable during the quarter, at $2.6 billion. That represents approximately 27,245 railcars at the end of March 2012, compared with roughly 29,000 railcars at the end of 2011. The positive here is that railcar pricing has increased, while the modest negative is the 6% drop in the backlog units. The good news is that, even though Trinity increased its railcar production to 5,010 units in the March quarter, it still has more than five quarters worth of production on hand. As far as the stock is concerned, the share price has climbed 8% from my initial recommendation in late October. Yes, high gas prices, auto loadings and other factors bode well for rail traffic gains, despite weaker coal demand. However, the recent reversal in favorable manufacturing data, compared with just a few months ago, has me waiting for a pullback in Trinity shares so I can add more in the near term. Finally, earlier this month I advised subscribers to take the money and run from AOL shares following the stock's pop on the company's patent sale to Microsoft (MSFT) for more than $1 billion. In the two weeks since that rocket-like jump in the shares, AOL shares have slipped nearly 11% from the recent 52-week high of $27.47 hit on April 9. My concern remains in the company's business model, which in my view remains heavily challenged, if not broken. At the time I made my recommendation, I was concerned about the potential impact of Facebook's pending IPO. The recent SEC filing of the latter, which told us Facebook's revenue and profit have slipped recently, only fans the flames of my concerns. That's because it's now likely Facebook will become even more aggressive in developing revenue streams that are liable to challenge AOL and others, including Yahoo! (YHOO). AOL may be cash-flush for a while but, excluding that, its shares trade at 22x consensus 2012 earnings of $0.50 per share -- and that likely includes more than $0.10 per share in interest income. Excluding that interest income, the valuation on the shares is far more rich, near 28x earnings, to reflect the business. Who pays high multiples for cash? ______ Editor's Links More on investment strategy: Get Multiples, Not Percentages Attention Agriculture Hunters Hop Into This TAXI

Revisiting Some Past Calls

Let's look at how things are shaping up at GNC, Trinity and AOL.

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