Every year there is a seasonal buying opportunity in stocks that are being temporarily pushed even lower than what is reasonable by investors who are selling in order to harvest tax losses. Stocks that have dropped in value during the year are usually strong candidates for this and many tech stocks fit this profile now. As soon as 2013 rolls around in about 4 weeks, the supply of stock being sold for tax-loss purposes will end and that will create a more balanced supply and demand dynamic for certain stocks. As everyone knows, prices are impacted by supply and demand. Knowing that this could become more favorable and balanced in the near future, investors should consider picking up shares of these beaten-down tech stocks:
Intel Corporation (INTC) shares started the year out at about $25 and went up to around $29 in May, but since that time, there has been a steady decline to the current $19 range. Investor concerns over Intel include disappointment in its mobile chip strategy, the news that Intel CEO Paul Otellini plans to resign in 2013, and what some believe is a secular decline in the popularity of the PC and the dominance that companies like Microsoft (MSFT), Intel and Hewlett-Packard (HPQ) have had in this industry. There is no doubt that tablets like the iPad have put a huge dent in PC growth, and this industry is now going through an adjustment period to reflect the changing industry dynamics. However, it seems premature to declare that the PC era is over, more likely it is a slowdown, not the end of the industry. Laptops and desktops still have a place in this world but tablets have created a new market and competition. This will be absorbed by the PC industry over time. Intel has a multi-decade history of facing technological and other challenges successfully and it also has the research and development budget to continue developing new advances. With the stock trading near 52-week lows, it is likely we will be seeing year-end tax-loss selling, which could work to the advantage of investors who buy now. With a very generous yield of 4.6%, Intel shares will pay investors to wait for a higher share price, and that might just be around the corner in January. Just a few days ago, analysts at Argus reiterated a buy rating on Intel and set a $25 price target. That would provide investors who buy now with about 25% upside, on top of the dividend income.
Here are some key points for INTC:
Current share price: $19.57
The 52-week range is $19.23 to $29.27
Earnings estimates for 2012: $2.11 per share
Earnings estimates for 2013: $1.96 per share
Annual dividend: 90 cents per share, which yields 4.6%
Corning Inc., (GLW) shares were trading around $14 in January, but weak demand for televisions has put pressure on revenue growth and the stock price. Corning makes the glass that is used by many major television manufacturers and weak sales due to a slow global economy have impacted profit margins. However, Corning is seeing solid demand in other areas. It manufactures "Gorilla Glass," which is used for the touch screens on many smartphones and tablets. This and other products in the specialty glass division can help offset weakness from the television industry. Corning has a very strong balance sheet with about $6.35 billion in cash and just around $3.4 billion in debt. The stock looks undervalued when considering a few valuation metrics. For example, the shares trade for just about nine times earnings and it yields nearly 3%, while the average stock in the S&P 500 Index (SPY) trades for about 14 times earnings and yields just over 2%. Corning shares also trade below book value which is $14.78 per share.
Here are some key points for GLW:
Current share price: $12.23
The 52-week range is $10.62 to $14.62
Earnings estimates for 2012: $1.28 per share
Earnings estimates for 2013: $1.36 per share
Annual dividend: 36 cents per share, which yields 2.9%
Microsoft shares were doing just fine up until a few weeks ago, and then it seems like this stock could no longer escape the same fate that other PC-related stocks experienced, which was a loss of investor appetite. It appears that investors had high hopes that Microsoft's Windows 8 launch would create a PC upgrade cycle and lead to a strong revenue surge for the company. Investors were also hoping that its highly anticipated "Surface" tablet would pose a challenge against the iPad. However, both Windows and the Surface tablet have launched recently and while both are selling, people aren't exactly waiting in long lines for these products. This less-than-exciting level of interest seems to be translating over to a weak share price and the stock is now near 52-week lows. Many investors who bought this stock earlier in the year could be sitting on losses and that makes it a likely candidate for tax-loss selling now. While the PC industry is in transition and even though the "Surface" tablet might not be an iPad killer, Microsoft still has a huge installed base for Windows and it also is seeing success in other products and services like Skype and the Xbox video gaming system. The stock is trading for just about 8 times earnings and with a yield around 3.5%, it is not a bad place to park some money. Another big plus is that it has an incredibly strong balance sheet with about $67 billion in cash and just around $12 billion in debt. This makes it more likely for the company to boost the dividend in the future or even offer a special dividend as it has in the past. When investors take a fresh look at stocks in 2013 and when tax-loss selling is over, Microsoft shares could be poised to rebound.
Here are some key points for MSFT:
Current share price: $26.62
The 52-week range is $24.30 to $32.95
Earnings estimates for 2012: $2.90 per share
Earnings estimates for 2013: $3.24 per share
Annual dividend: 92 cents per share, which yields 3.5%
Data sourced from Yahoo Finance. No guarantees or representations are made.
Disclosure: I am long GLW. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.