With the Holiday Season rolling around certain stocks tend to perform well. The big box stores such as Wal-Mart Stores Inc. (WMT) and Target Corp. (TGT) are the usual suspects due to the throngs of people stampeding through their doors on Black Friday. Cyber Monday's obvious pick is Amazon.com Inc. (AMZN). These companies are focused on selling products and do it very well.
Rounding out my top five choices are Apple Inc. (AAPL) and Nokia Corporation (NOK). These are companies focusing on products. Both have timed the launch of their newest products to coincide with the holiday gift giving season. The fact that they are focused on mobile devices is why they top my list. I posit these devices will be at the top of most shopping lists this year. Recent news of long lines and product shortages bodes well for both the product manufacturers and resellers. One thing I've noticed is people will skimp and penny pinch when it comes to most products, but they have to have the latest and greatest mobile devices at any price. Now, even though these stocks should do well going into the gift giving season, we need to do some due diligence to see if now is the time to buy. In the following sections we will review the current status of each stock.
In the following sections, we will take a closer look at these stocks to ensure the mean target prices are justified. Moreover, we will perform a review of the fundamental and technical state of each company to determine if now is the time to buy. The following table depicts summary statistics and Monday's performance for the stocks.
The company is trading 16% below its 52-week high and has 30% upside potential based on the analysts' mean target price of $760 for the company. Apple was trading Monday for $588, up over 3% for the day.
Fundamentally, Apple is seems vastly undervalued. Apple has a fortress balance sheet and rock solid fundamentals. Apple is trading for 13 times free cash flow. Apple's PEG ratio is .66. Apple's quarter over quarter EPS and sales growth rates are 27% and 23% respectively. Apple's net profit margin is 26.67%. Apple's ROE is 42.84% with no debt and a significant cash hoard.
Technically, the company is still in a well-defined up long-term uptrend, yet has sold off after two explosive parabolic moves higher. The stock touched the 52 week low of $500 and bounced significantly off that level for the third time this year.
Apple's stock appears to exceed my expectations in my three main areas of concern when evaluating a stock. Apple's near-term product catalysts are the iPad Mini and the iPhone5 released just in time for the holiday season. Fundamentally, the company has a fortress balance sheet and is selling at a steep discount to its peers. In my last update regarding the stock, I suggested the $500 mark would mark the bottom for the stock. It is still not too late to get in. The stock should continue to rise from here.
The company is trading 8% below its 52-week high and has 13% upside potential based on the analysts' mean target price of $274 for the company. Amazon was trading Monday for $243, up over 1% for the day.
Fundamentally, Amazon has some positives. The stock is a growth proposition so it is not undervalued currently with a forward P/E of 136. EPS for the next five years is expected to grow by 34%. EPS next year is expected to grow by substantially more according to Finviz.com. Sales are up 27% quarter over quarter and the stock trades for two times sales. The company operates at a slight profit.
Technically, the company is still in a well-defined long-term uptrend, yet has sold off recently and tested resistance at the 200-day sma and bounced higher. The stock just breached the 50-day sma which is a bullish sign.
I use the company's web site and believe they are going to do very well this Christmas season. Whenever I want to find the lowest price product Amazon seems to beat out the competition. I like Bezos' approach regarding the Kindle device. He sells it at cost so people will use it as a conduit to buy Amazon products and services. The stock is a buy at current levels.
The company is trading 37% below its 52-week high and 23% above its consensus mean target price of $2.62 for the company. Nokia was trading Wednesday for $3.36, down 6% for the day.
Fundamentally, Nokia has several positives. Nokia is trading for 1.3 times book value, 33% of sales and has $3.09 in cash per share. EPS next year is expected to rise by 77%. Nokia pays a dividend with a 7.10% yield.
Technically, the stock has rebounded nicely since July and has established an uptrend. In an earlier missive regarding the stock I suggested the stock was currently in a breakout position at the apex of a descending triangle and a major breakout move may be about to occur. The stock broke out to the upside and is selling off as short term traders take profits and move on. I see the recent pullback as a buying opportunity. The risk/reward ratio on the stock just got a little better. The stock is a buy here.
U.S. carriers are doing their best to give the Windows Phone (MSFT) a fighting chance. Verizon Wireless (VZ) will offer a Windows Phone model for free with contract signed by year end, but doesn't say from whom. Big Red currently offers Nokia's mid-range Lumia 822 for $99. Sprint meanwhile promises to introduce WP models next year. AT&T is offering Nokia's Lumia 920 for $450 without a contract. Nokia is aggressively pricing their product which bodes well for the company. Reports the Lumia 920 has sold out in stores may have been the catalyst for the pop Wednesday. With a dividend yield of nearly 10% and Microsoft's backing, the risk/reward ratio looks positive for the stock.
Target Corp. And Wal-Mart Stores Inc.
Target and Wal-Mart are extremely well versed in how to lure shoppers into their stores by offering loss leader products. By the time you have left the store they most likely will have enticed you to pick up a few extra products you didn't even know you wanted or needed for that matter. I expect them to do well this season.
The company is trading 4% below its 52-week high and 11% above its consensus mean target price of $70 for the company. Target was trading Wednesday for $62.78, down nearly 3% for the day.
Fundamentally, Target has several positives. Target is trading for 2.6 times book value, 60% of sales and pays a dividend yielding 2.23%. EPS next year is expected to rise by 11% and by 12.45% for the next five years. The company has a 5% net profit margin.
Technically, the stock has rebounded nicely since March and has established an uptrend. The stock recently bounced off the bottom edge of the current uptrend channel and broke through the 50-day sma. The stock is consolidating at this level. Now is an excellent opportunity to pick up shares.
Wal-Mart Stores Inc.
The company is trading 10% below its 52-week high and 14% above its consensus mean target price of $79.44 for the company. Wal-Mart was trading Wednesday for $69.81, down slightly for the day.
Fundamentally, Wal-Mart has several positives. The retailer is trading for 3 times book value, 51% of sales and pays a dividend yielding 2.26%. EPS next year is expected to rise by 9.35% and by 9.40% for the next five years. The company has a 4% net profit margin.
Technically, the stock has established an uptrend since the end of April. The stock recently pulled back to the 200-day sma and bounced off it slightly. This is bullish for the stock. I see this as an ideal entry point to start a position in the name. The stock is a buy here.
The Bottom Line
Often times buying equities is a counterintuitive game. You are always looking to read the tea leaves and read between the lines to decipher the proper move to make. This buying opportunity is not like that. I posit this is a one time to go with the crowd, the crowd of people flooding the stores and online retailers buying the latest smartphones and tablets for friends and family.
Before buying any stock do your own due diligence first. If you do decide to start a position, I suggest layering in a quarter at a time on a weekly basis at a minimum to reduce risk. Build the position slowly.
Additional disclosure: This is not an endorsement to buy or sell securities. Investing in securities carries with it very high risks. The information contained within this article for informational purposes only and is subject to change at any time. Do your own due diligence and consult with a licensed professional before making any investment.