Earnings season can be a trying time to make new investments, as the potential for large and unpredictable moves is much higher. But it can also provide an opportunity for strong stocks to distinguish themselves. Today’s recommendation is a stock that popped 17.5% on much higher-than-average volume on Friday, after reporting impressive earnings. Stocks that gap up strongly on earnings often continue to perform well in the following weeks and months, so investors who buy now may still benefit from most of this stock’s advance. And as Richard J. Moroney, editor ofUpside, writes below, the stock still looks undervalued. Here’s his recommendation.
“Dolby Laboratories, Inc. (DLB) is being upgraded to Best Buy. Shares surged today on strong March-quarter results and news that Microsoft will use Dolby’s audio technology when it launches the new Windows 8 operating system.
“Per-share earnings were $0.81, up 13% and above the consensus of $0.75. Revenue rose 4% and also topped the consensus. For fiscal 2012 ending September, management targets per-share earnings of $2.38 to $2.62, bracketing the consensus of $2.57. The release of Microsoft Windows 8, expected this fall, should contribute to Dolby’s sales and earnings beginning in fiscal 2013.
“Despite today’s gain the stock seems reasonably valued at roughly 17 times expected fiscal 2012 earnings, especially considering Dolby’s more than $9 per share in cash. Dolby, with a Quadrix Overall score of 93, is a Best Buy.”
- Richard J. Moroney, CFA, Upside, May 4, 2012