2013 is finally here and the Fiscal Cliff Fiasco is behind us. The market is currently rallying over the resolution of the fiscal cliff. The politicians found a way to make it happen at the eleventh hour as they always do.
The market set several records Wednesday as the Dow soared more than 200 points. No doubt Washington will again take center stage as the negotiations to raise the debt ceiling heat up in the coming weeks. This should provide a buying opportunity as stocks get sold off indiscriminately. I have selected five stocks to review that have the potential for solid gains in 2013.
In my opinion, the following stocks have clear near-term catalysts for growth and may outperform the market indices in 2013. I posit this is just the beginning for these stocks which may present excellent buying opportunities at current levels.
In the following sections, we will perform a review of the fundamental and technical state of each company under review followed by an analysis of the underlying catalysts for the stocks. The following table depicts summary statistics and Wednesday's performance for the stocks. The following charts are provided by Finviz.com.
Alcatel-Lucent, S.A. (ALU)
The stock is up 25% in the last quarter. The company is trading 48% below its 52-week high and is currently trading 7% above the analysts' mean target price of $1.29 for the company. ALU was trading Wednesday for $1.40, up slightly for the day.
Fundamentally, ALU has several positives. The company's EPS is expected to grow by 55.60% next year. ALU is trading for approximately 72% of book value. The company has $2.67 in cash per share. Book value per share is $1.94. The cash flow situation was greatly improved by the recent debt deal.
Technically, ALU has been in a well-defined trading range between $1 and $1.20 for the last several months. The stock recently breached significant resistance at $1.20 and is now trading 20% above it at the 200-day sma. This is a very bullish scenario. If the stock can breach the 200-day sma and hold above it, this may mark the beginning of another leg up.
The proliferation in spending by major telecom companies, a major contract win and receiving a loan to boost liquidity are the major catalysts propelling ALU shares higher.
It is a competitive world out there. Risks that new technologies will be developed to supplant those of ALU are always on the horizon.
At some point you have to start making money. ALU ha a net profit margin of -1.12%. If the company cannot get its house in order and turn a profit it cannot continue as a going concern.
The risk reward ratio is favorable for longs at this point. ALU is taking the proper steps to return the company to profitability and the prospect of the EU taking action to shore up the competitive market bodes well for the stock. The stock is a buy at this level.
Sprint Nextel Corp. (S)
The company is up 142% in 2012. The company is trading 5% below its 52-week high and has 11% upside based on the analysts' mean target price of $6.34 for the company. Sprint was trading for $5.74 on Wednesday, up over 1% for the day.
Fundamentally, Sprint has some positives, but it's not all good news. Sprint is trading for 2 times book value, yet only 50% of sales. EPS next year are expected to rise by 46.20%.
Technically, Sprint is neither overbought nor oversold. The stock achieved the golden cross at the end of June and proved the bullish indicator true. This is the beginning of a long-term rally. The stock is currently under accumulation and hugging the 50-day sma.
Sprint is the only company that offers the Apple iPhone with unlimited data, which is driving subscriber growth. The company is cleaning up the balance sheet and executing well on operational objectives. Sprint recently received an offer from Softbank (OTCPK:SFTBF) to buy a majority stake in the company. SoftBank has also suggested it's willing to make additional moves. Leap Wireless (LEAP) is a name that inevitably comes up whenever U.S. mobile consolidation is a subject.
The telecom business is a harsh competitive environment that changes fast. It's hard to have much clarity as to what the future may hold.
The company needs to start turning a profit. The current net profit margin of -12.28% has to become positive.
I don't expect Sprint shares to double again in 2013. Nevertheless, the company has laid the groundwork for returning to profitability. The stock is a buy long-term.
Sirius XM Radio Inc. (SIRI)
SIRI is up 62% for 2012. The company is trading at its 52-week high and has 7% upside potential based on the analysts' mean target price of $3.22. Sirius stock was trading Wednesday for $3.02, up 4% for the day.
Fundamentally, this stock has several positives. SIRI has a forward P/E of 29, and trades for 24 times free cash flow. EPS for the next five years is expected to rise by 28%. Quarter-over-quarter sales are up 14%. SIRI's TTM ROE is 87%, and the company's net profit margin is 103%.
Technically, Sirius stock has been in a well-defined uptrend since the start of July. The coveted golden cross was achieved by the stock in August. This extremely bullish signal has once again been proven true. The stock has been hugging the 50-day sma since the start of November and just broke out 8% above it.
The big news is Sirius' Board of Directors has approved a $2 billion common stock repurchase program. This is a development many have been waiting a long time to hear.
Secondly, new car sales are up significantly and SIRI is a derivative play on the auto industry. SIRI is well positioned for organic growth.
If global growth does not gain traction and the U.S. goes back into a recession, this could cause an issue for SIRI as customers may start to cut corners.
The recent positive news regarding new car sales and a share buyback program bodes well for the stock. The future looks bright for Sirius. I like the stock at this level, but would look for a pullback to get in.
Nokia Corporation (NOK)
The company is up 87% for the second half of 2012. The company is trading 25% below its 52-week high and 34% above its consensus mean target price of $2.71 for the company. Nokia was trading Wednesday for $4.13, up almost 5% for the day.
Fundamentally, Nokia has several positives. Nokia is trading for 1.43 times book value, 36% of sales and has $3.19 in cash per share. EPS next year is expected to rise by 83%. Nokia pays a dividend with a 6.39% yield.
Technically, the stock has rebounded nicely since July and has established an uptrend. The stock broke out massively to the upside recently as it fulfilled the golden cross where the 50-day sma crosses above the 200-day sma. The stock is technically solid here.
Three major pieces of news have come out bolstering my bullish sentiment on the stock. First, Nokia is aggressively pricing product and reportedly the Lumia 920 was sold out in stores for the holidays.
Secondly, Nokia is seeking to block the sale of most RIM (RIMM) products in the U.S., Canada and U.K. through the enforcement of a recent ruling by an arbitrator.
Finally, and most likely the major reason for the recent strength in the stock, Nokia won an important victory in China recently. The company struck a subscription deal with China Mobile. China Mobile is the country's No. 1 carrier with 700 million subscribers, and started shipping Nokia's new flagship phone, the Lumia 920T, which runs on Windows Phone 8, in December 2012.
Whenever you are in competition with the likes of Apple, there are always downside risks. Nokia has been playing a game of catch up with Apple regarding its phone's features and benefits. Things sound good at this point for Nokia. Nonetheless, the proof will be in the pudding so to speak. We will find out how things are really going when they announce earnings next quarter.
Once again, Nokia is not turning a profit. This situation has to change or the company will not last.
With a dividend yield of nearly 7% Microsoft's backing and the recent contract win in China the risk/reward ratio looks excellent for the stock at this point. The stock is a buy here, but once again I would wait for a pullback to start a position.
Ford Motor Co. (F)
Ford is up 29% in the last quarter. The company is trading at its 52-week high and has 12% upside based on the analysts' mean target price of $14.76 for the company. Ford was trading Wednesday for $13.20, up almost 2% for the day.
Fundamentally, Ford has several positives. The company has a forward P/E of 7.86. Ford is trading for 10.99 times free cash flow and 2.3 times book value. EPS next year is expected to rise by approximately 10%. The company pays a dividend with a yield of 1.74% and has a PEG ratio of 0.49 and a net profit margin of 13.36% and an ROE of 142%.
Technically, Ford is currently in a well-defined uptrend. The stock has been in a solid uptrend since the last quarter. Look at the chart. The stock has just achieved the coveted golden cross where the 50-day sma crosses above the 200-day sma. This is a significant event and should drive the stock higher as many technical traders use this as a bullish signal to buy.
Chinese market penetration, the right sizing of Europe and the U.S. car replacement cycle will be the major catalysts for the stock in 2013. November brought growth throughout Ford's product portfolio in the U.S., with car sales up 15 percent, utilities up 2 percent and trucks up 4 percent.
The Eurozone sovereign debt debacle could finally implode causing another credit crunch large enough to disrupt the global economy.
Execution risk: Ford does not meet earnings expectations due to lagging sales or inability to get European operations under control.
Ford's stock runs out of steam as investors take profits and move on after such a recent large percentage move in the stock.
U.S. government does not solve the fiscal cliff debate and the U.S. falls into another recession.
With Mulally sticking around, sales and profits growing in the U.S. and China and Europe being right sized, the stock remains a buy long-term buy in my book.
Ford is trading at an extremely discounted price to earnings multiple even when taking in to account lower earnings expectations.
Ford is in the process of reinventing its products to be more energy efficient, yet still attractive. With the average age of cars currently on the road at 11 years, Ford stands to sell quite a few new cars as people replace the older models.
Finally, the Fed is currently employing quantitative easing which should underpin the markets providing the so called "Bernanke Put." Based on these assumptions I believe the risk reward for starting a position in Ford is favorable.
I see opportunity ahead for Ford. If you are considering buying in to Ford, I would wait a couple days for the stock to cool off some prior to starting a position. Even so, I don't see Ford falling much anytime soon.
I started a position in Ford. I believe the company is undervalued and is well positioned to take advantage of the resurgence in new car buying as evidenced by the current uptick in sales.
The Bottom Line
I posit these equities will continue upward from their current share prices based on macroeconomic, sector and company specific catalysts. These stocks have great stories, good fundamentals and positive facilitators for future growth. However, many are trading at significant discounts due to incessant negative macroeconomic headlines and a lack of confidence from investors that the economic picture will improve.
If you ignore the noise, do your due diligence, have a long-term time horizon and courage in your convictions, you can be successful. I suggest layering into these names as there may be a buying opportunity in these stocks produced by Washington as they work their way through the so called fiscal cliff. Take your time building a position. One of the major factors affecting your potential return in a stock is your cost basis.
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.