General Motors, AT&T, Endo: Crucial Junctures May Offer Opportunity

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AT&T Inc. (NYSE:T), General Motors Company (NYSE:GM), and Endo Health Solutions Inc (NASDAQ:ENDP) have announced major developments recently.  Here is a close look at whether these stocks are good for investors’ portfolios:

General Motors, AT&T, Endo: Crucial Junctures May Offer Opportunity

AT&T Inc. (NYSE:T) – the largest wireless telecom operator in the US – provided a business update for the second quarter of 2013. The company expects net additions of 500,000 post-paid customers during the quarter, reflecting an improvement on the first quarter during which it was outperformed by Verizon Communications Inc. (NYSE:VZ). However, a more important update has been offered on the margins front. The company expects its wireless margins to be flat sequentially while consolidated margins may be down from the previous year.

No Change in AT&T’s Full Year Guidance

AT&T Inc. (NYSE:T) has not changed its 2013 full year guidance with the update, but fears of margin pressure have driven the stock down over the previous 30 days. However, this may be a good opportunity to enter this dividend paying stock at discounted levels. AT&T can be expected to benefit significantly from its massive investment in internet protocol broadband networks. At a debt equity ratio of 0.84, the company is one of the least leveraged plays in the wireless space while still offering a dividend yield of 5 percent. Valuations meanwhile are not stretched as the stock still trades at a forward PE multiple of 13.2.

Increase in General Motors’ Shares Demand

General Motors Company (NYSE: GM) has been a gainer over the last quarter as encouraging economic indicators are translating to better vehicle sales. Besides, the company has been recently added in Standard & Poor’s 500 index. The inclusion is creating increased demand for General Motors’ shares as funds tracking the index are needed to increase their positions in the stock. This is also working on a separate plane by forcing the U.S. Treasury to sell its shareholding earlier than planned.

Reduced government meddling in auto business is largely seen as a positive by investors who have fewer doubts about recovering economy. General Motors Company (NYSE:GM) is one of the few pure play manufacturing bets for investors and it comes at very relaxed valuations which indicate further upside may not be a pipe dream. The stock has a forward earnings ratio of 8, debt equity ratio of 0.49 and price by book value of 1.3. In comparison, its competitor Ford has these ratios as 9.4, 6.1, and 3.5 respectively.

Regulatory Issues Play a Big Role in Generic Drug Business

Generics pharma player Endo Health Solutions Inc (NASDAQ:ENDP) has gained 10.5 percent over the last 30 days after taking a severe beating early last month. The company’s shares were dumped last month after the U.S. FDA’s recent decision not to ban older generic formulations of Opana ER from the market – a move that shaved $150 million in potential revenues for Endo Health Solutions. The decision also forced the company to revise its profit forecasts on the downside.

Following the unfavorable ruling, the company has undertaken a restructuring exercise that would reduce $325 million from its annual operating expenses primarily through a 15 percent global workforce reduction but also through evaluation of strategic alternatives for the Healthtronics and branded pharmaceutical discovery platform business segments. Endo is also interested in pursuing accretive acquisitions and product licensing deals to improve its strategic positioning. The initiatives have apparently clicked with investors and analysts, as UBS and Stifel Nicolaus raised their target price on the stock which currently trades at a forward price earnings ratio of 10.2.

While these strategic initiatives and business updates are important and encouraging, it is imperative for investors to differentiate and understand long term and short term implications. For Endo Health Solutions Inc (NASDAQ:ENDP), the restructuring is a positive step but merely works as a factor negating the impact of an unfavorable ruling. Similarly, AT&T Inc. (NYSE:T)’s massive investment stands to benefit the company and shareholders by extension over a longer period. However, the stocks may see correction in the medium to short term if volatility returns in the markets.

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