The Zacks Analyst Blog Highlights: JPMorgan Chase, Bank of America, Apple, Amazon.com and Barnes & Noble

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Feb 21, 2012, 09:30 ET

CHICAGO, Feb. 21, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include JPMorgan Chase & Co. (NYSE: JPM), Bank of America Corporation (NYSE: BAC), Apple Inc. (Nasdaq: AAPL), Amazon.com Inc. (Nasdaq: AMZN) and Barnes & Noble, Inc. (NYSE: BKS).

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Here are highlights from Friday's Analyst Blog:

Foreclosures Continue Uptrend

Almost a week after the foreclosure settlement deal was signed between 49 states and five major mortgage servicers, RealtyTrac, the leading online marketplace of foreclosure properties, released its January 2012 foreclosure market report. According to the report, foreclosure filings for the month rose 3% from the prior month but declined 19% from the prior-year month, with a total of 210,941 properties receiving default, auction or repossession notices.

Though there was a rise in the number of property auctions and repossessions by banks, new defaults remained unchanged from December 2011. Issuance of default notice, the first step in the foreclosure process, remained at par on a month-over-month basis but dipped 22% year over year to 58,362.

Conversely, in January 2012, foreclosure auctions inched up 1% from December 2011 but declined 20% from January 2011 to 86,037 properties. Similarly, the final stage, i.e. bank repossessions, surged 8% from the previous month but slipped 15% from the year-ago month to 66,542 properties. The states with the highest foreclosure activities were Nevada, California, Arizona, Georgia, Michigan, Florida, Illinois, Delaware, Colorado and Indiana.

Moreover, there are signs that the foreclosure activities would increase in the upcoming months as a result of the $25 billion settlement deal that took place between five mortgage servicers – JPMorgan Chase & Co. (NYSE: JPM),Bank of America Corporation (NYSE: BAC), etc., 49 states' attorneys general and the regulators. The deal is expected to speed up the rate of the foreclosure activities, which was almost frozen till now.

Why Foreclosures Declined?

The main reasons behind the drop in foreclosure activities were delays due to processes held up in courts, re-filing of earlier filed foreclosure cases, regulatory agencies' probes and reluctance of lenders to take back properties resulting from declining home sales.

The problem was further compounded by flawed documents used by the lenders to foreclose properties. At the time of foreclosing homes, many lenders used 'robo-signers' − employees who sign hundreds of documents a day without verifying decisive information like the previously outstanding amounts of borrowers.

This problem further intensified because of the negligence of homeowners and lawyers despite their awareness about the foreclosure rules. Flawed paperwork also raised questions about the validity of the ownership documents. Hence, in October 2010, JPMorgan, Bank of America and Ally Financial temporarily suspended foreclosures across the country. Thereafter, a probe was launched by U.S. bank regulators and a task force of attorneys general of all 50 states.

Apart from this, a combination of various measures taken up by national and state-level regulators, to allow distressed home owners to successfully avoid the chances of foreclosures, also led to the decline in foreclosure activities over the past year. Some of these measure included loan modifications, lender-borrower mediations and mortgage payment assistance for the unemployed.

Reason for the Future Rise

Now, with nearly all the problems related to flawed paper work getting resolved, the temporary downtrend in foreclosures is about to get reversed. Moreover, the settlement deal clearly states the procedures to be followed while foreclosing a property. This will allow the servicers to step up the foreclosure activities.

RealtyTrac anticipates foreclosures to rise 25% this year to 1 million homes compared with 804,000 homes foreclosed in 2011. Similarly, Fitch Ratings also expect foreclosures to accelerate as lenders try to clear the backlog that was in place for more than a year.

With many properties expected to come on to the market due to increased foreclosure activities, this will put additional pressure on home prices across the country.

Apple Leads the Table Onslaught

Apple Inc. (Nasdaq: AAPL) ended 2011 as the undisputed leader in the tablet market with a 62% market share, according to data from IHS iSuppli. Apple shipped 40.5 million iPads during the year, the highest compared to any of its peers. Total tablets shipped increased a whopping 194% sequentially.

Moreover, with the 39% sequential increase in fourth quarter shipments, Apple left all its competitors far behind.

Apple's fourth quarter market share of 57% was less than in the third quarter, but still miles ahead of its competitors. Amazon.com Inc.'s (Nasdaq: AMZN) was a distant second with its recently launched Kindle Fire picking up a 14% share of the market (3.8 million units shipped).

Samsung with its Galaxy Tabs was the third in line with 8% market share, representing a 16% sequential increase in shipments. Barnes & Noble, Inc.'s (NYSE: BKS) Nook came in close to the third-placed Galaxy Tabs. Nook took a 7% share, but notably, its tablet shipments sky-rocketed 156% on a sequential basis.

The sequential decline in Apple's market share in iPads was traced to the release of iPhone 4S in October that attracted major interest among Apple fans and the public in general. In the Oct- Dec quarter, Apple sold 37 million iPhones, buoyed by robust holiday sales of iPhone 4S.

Another factor that somewhat dented the sequential performance was Kindle Fire. It registered unprecedented success since its release and grabbed 6% market share in 2011. Moreover, price cuts from Android-based manufacturers and freebies being distributed as a promotional activity also helped the sequential increase in non-iPad tablet sales. These factors however did not overshadow Apple's leadership position in the tablet market.

Come late 2012 and early 2013, analysts from IHS iSuppli predict that there will be a rise of new Windows 8 tablets and ARM microprocessor-based tablets. It is most likely that in the coming months pricing of the device is going to become a larger factor than the niche brand value.

Despite these arguments, Apple's rumored release of iPad 3 in the second quarter of 2012 has generated tremendous enthusiasm among gadget enthusiasts. Analysts from IHS iSuppli expect the device to enjoy strong sales. The new version of iPad 3 is expected to include features like QXGA retina display with a pixel format of 2,048 by 1,536, with SIRI voice interface that was introduced in iPhone 4S.

Separately, Apple has toppled Samsung to become the leader in the smartphone market in the fourth quarter of 2011. According to the data compiled by research firms Strategy Analytics and IHS iSuppli, Apple returned to its former glory in the smartphone market, buoyed by robust holiday sales of iPhone 4S.

We conclude that Apple remains the biggest growth story, based on its superior product pipeline, Apps, iCloud and iPhone 4S, as well as the upcoming update of iPad and Apple TV. Apple is also well positioned to gain from a loyal customer base and international expansion, in our view.

Particularly, Apple's expansion in Brazil, Russia and in other emerging economies in the Asia-Pacific region will lead to incremental growth over the long term. Apple's ability to spur the popularity of its products in developing nations, where pricing is often an important consideration, will go a long way in deciding the company's future growth.

However, legal complexities and patent litigation cases against Samsung will remain the primary headwinds in the near term. Additionally, the company reportedly is entangled in a legal dispute in China pertaining to the "iPad" trademark. This could prove to be a major headwind for Apple, as China is one of the fastest growing markets for the company. Apple's competitive edge would be adversely affected going forward if it is prevented from selling its iconic tablet in China due to the lingering trade dispute. Moreover, competition from other smartphone and low-priced tablet makers will remain an overhang on the stock.

We maintain our Neutral recommendation over the long term (6-12 months). Currently, Apple has a Zacks #1 Rank, which implies a Strong Buy rating in the near term.

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