Lighting and health care could give shares of Philips a boost
Dec 7th 2009 5:45PM
Updated Dec 7th 2009 6:10PM
Koninklijke Philips Electronics (PHG), commonly known as Philips, is in the catbird seat regarding more-efficient lighting, which is a major reason why I'm reiterating my buy rating for the company, first recommended on June 2, 2009, at a price of $20.30. If you bought Philips in June, you're up an impressive 45%.
Philips is restructuring three business units to lower costs, but the key value-adders here are two businesses -- lighting and health care equipment -- both will benefit from substantial, favorable, global trends.
Lighting (30% of 2008 revenue) will continue to benefit from the transition to energy-saving fluorescent bulb technology and subsequent lighting innovations that will reduce any consumption even more. Meanwhile, health care (35% of 2008 revenue) will see a substantial increase in sales of medical resonance equipment and patient monitoring instruments, due to an aging population in Europe and likely universal health care legislation in the United States, with the latter adding 35-45 million new, citizens accessing health care regularly.
The First Call FY2009/FY2010 EPS estimates for PHG are a loss of 5 cents and a profit of $1.14.
Technically, Philips' stock chart is strong -- an uptrend, but with above-average volatility. Hence, don't buy PHG if you can't tolerate a 15% to 20% stock dip in a month -- it could happen. Otherwise, the chart reveals a stock that accelerates out of dips, and stays above the key, 50-day moving average -- a sign that institutional investors are continually establishing/adding to their PHG positions.
Stock Analysis: Koninklijke Philips Electronic is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in PHG now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your PHG position before February 2010. Sell/stop loss if you were to buy shares in this company: $7.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.