Market Overview

Three Alternatives to Sears (AKAM, FISV, KLAC)

Sears Holding (NASDAQ: SHLD) is to be booted from the S&P 500 because it no longer considered representative of the index, according to Standard & Poor's. That is, Sears has too few shares available for trading to be representative of one of the world's top 500 companies.

For investors who might have still been holding on to shares in hopes that hedge fund billionaire Eddie Lampert would finally turn the company around, here is a look at three possible alternatives: Akamai Technologies (NASDAQ: AKAM), Fiserv (NASDAQ: FISV) and KLA-Tencor (NASDAQ: KLAC). Though they do not operate in the same sector, they are similar in some ways. Their market caps and share prices are in the same ballpark. They are based in the United States, components of the S&P 500 and listed on the Nasdaq. Like Sears, two of them do not offer a dividend. Furthermore, all have a positive return on equity and are expected to have positive earnings growth going forward.

Akamai Technologies

This Cambridge, Massachusetts-based company offers application and cloud performance solutions to enhance the operation of the applications used by enterprises to connect with their employees, suppliers and customers. Its market capitalization is near $6.5 billion and its long-term earnings per share (EPS) growth forecast is about 13 percent. The price-to-earnings (P/E) ratio is higher than the industry average, but so is the operating margin. Short interest is about four percent of the float. Out of 23 analysts who follow the stock surveyed by Thomson/First Call, 11 rate it at Buy or Strong Buy; none recommend selling shares. But their mean price target is only about 4.5 percent higher than the current share price. Over the past six months, Akamai has outperformed competitor Level 3 Communications (NYSE: LVLT) and the S&P 500, due in part to a 26% jump in late July after the company delivered better-than-forecast second-quarter results and lifted its revenue guidance.

Fiserv

Fiserv offers electronic commerce systems and services, such as transaction processing, electronic bill payment, business process outsourcing and document distribution services to financial institutions worldwide. Its market cap is more than $9 billion and it is headquartered in Brookfield, Wisconsin. The operating margin is higher than the industry average, and the return on equity is more than 18 percent. The long-term EPS growth forecast is near 12 percent. The P/E ratio is less than the industry average. Ten out of 22 analysts surveyed recommend buying shares; none recommend selling. Their mean price target, or where they expect the share price to go, is about 10 percent higher than the current share price. The stock has climbed more than 21 percent year to date, but has faced resistance at $72 since pulling back from a multiyear high in July. Still, Fiserv has outperformed competitor Accenture (NYSE: ACN) and the S&P 500 over the past six months.

KLA-Tencor

Based in Milpitas, California, this company manufactures equipment used in the semiconductor and nanoelectronics industries in the United States, Asia, Europe and Israel. The market cap is about $8.5 billion and it has a dividend yield above three percent. Its P/E ratio is less than the industry average and the operating margin is greater than the industry average. The return on equity is a healthy 24.5 percent, and the long-term EPS growth forecast is about 10 percent. Short interest is a little more than three percent of the float. Twelve of 18 analysts surveyed recommend buying shares. They believe the stock has some room to run, as their mean price target is more than 10 percent higher than the current share price, as well as higher than the 52-week high. Shares have pulled back more than three percent in the past week in response to an analyst's downgrade. Over the past six months, the stock has outperformed Applied Materials (NASDAQ: AMAT) and the S&P 500.

Competitors of Sears in the retail sector include Walmart (NYSE: WMT), Target (NYSE: TGT), JCPenney (NYSE: JCP), Kohl's (NYSE: KSS) and Macy's (NYSE: M). Among these, only struggling JCPenney has failed to outperform Sears in the past six months.

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