These five stocks have rallied substantially since the beginning of 2013. On average these stocks are up 15% year to date. Alcatel-Lucent, S.A. (ALU) is up the most at 21.58% while Groupon, Inc. (GRPN) is up the least at 8.44%. These facts alone carry little weight, but it's a good starting point when looking for stocks with positive momentum capable of creating alpha.
Additionally, the five stocks are trading at or below $10. Stocks trading for $10 or less tend to be more volatile with frequent, large percentage moves in the stock price. This provides the opportunity for greater returns (or losses) relative to the market. These are stocks with market caps of $3 billion or greater. Stocks trading under $10 may provide more bang for your buck.
Finally, these stocks have some very positive fundamentals. Now, simply selecting $10 stocks trading significantly below consensus and 52 week highs with some strong fundamental data is only the first step to finding winners that may provide alpha. We still need to perform further due diligence to determine if this is the time to start a long-term position in these stocks.
In the following sections we will perform a review of the fundamental and technical state of each company to determine if this is the right time to buy. Additionally, we will discern if any upside potential exists based on sector, industry or company specific catalyst. The following table depicts summary statistics and Tuesday's performance for the stocks.
The stock is up 22% year to date. The company is trading 38% below its 52-week high and is currently trading 17% above the analysts' mean target price of $1.37 for the company. ALU was trading Tuesday for $1.66, down 2% 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 88% of book value. The company has $2.68 in cash per share. Book value per share is $1.93. The cash flow situation was greatly improved by the recent debt deal.
Technically, ALU has made it back to where it took a major dive in July of 2012. The stock floundered around the $1 mark for several months prior to breaking out in mid-December. This will be a major resistance test as shareholders may sell now that they have been made whole.
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. Nevertheless, it is a competitive world out there. Risks that new technologies will be developed to supplant those of ALU are always on the horizon. Furthermore, 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.
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. I would like to see the stock break out above the $165 mark and hold that level for a few days or pullback somewhat prior to starting a position. The stock is at an inflection point.
Groupon is up 8.44% year to date. The company is trading 80% below its 52-week high and on par with the consensus mean target price of $5.22 for the company. Groupon was trading Tuesday at $5.23, down nearly 1% for the day.
Fundamentally, the stock has positives. The stock has a forward P/E ratio of 21.96 and trades for 12 times free cash flow. EPS and sales are up 95% and 32% respectively quarter over quarter. EPS next year is expected to rise by 41% and by 27% for the next five years.
Technically, the stock was in a well-defined downtrend, yet has found a bottom at $3, leveled off and began trending upward. Since the stock has rebounded 50% and broke through the first level of resistance at the 50-day sma. The 50-day sma has leveled off and I can see the golden cross potentially coming into play as time goes on.
The stock is down 85% from the IPO price and has Tiger Global Investments looking over the board's shoulder. They are in the process of cleaning Groupon up and getting it back on track in order to create shareholder wealth. I like the stock here. The odds of a buyout offer coming in the near future are good at this point.
Sirius XM Radio Inc. (SIRI)
SIRI is up 9% year to date. The company is trading 1% off its 52-week high and has 3% upside potential based on the analysts' mean target price of $3.27. Sirius stock was trading Tuesday for $3.14, down slightly for the day.
Fundamentally, this stock has several positives. SIRI has a forward P/E of 31, and trades for 26 times free cash flow. EPS for the next five years is expected to rise by 50%. 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 posting higher highs and higher lows since the start of December.
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.
On the other hand, the way people consume radio content is always in flux. The competitive landscape is changing as we speak with challengers of the likes of Pandora (P), Apple (AAPL) and a myriad of others providing alternatives.
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 $3 to get in.
Nokia Corporation (NOK)
The company is up 17% year to date. The company is trading 16% below its 52-week high and 38% above its consensus mean target price of $2.88 for the company. Nokia was trading Tuesday for $4.64, up almost 1% for the day.
Fundamentally, Nokia has several positives. Nokia is trading for 1.66 times book value, 41% of sales and has $3.21 in cash per share. EPS next year is expected to rise by 85%. Nokia pays a dividend with a 5.47% 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.
Major recent developments have come to light bolstering the stock. First, Nokia issued very positive fourth quarter guidance recently. The company expects to beat expectations on feature phones and the Lumia. Lumia shipment volume was 4.4 million units, more than 4 times than in the fourth quarter of 2011.
Furthermore, 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.
On The other hand, 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 as 2013 progresses.
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 $4.25 to start a position.
Micron Technology Inc. (MU)
Micron is up 20% year to date. The company is trading 18% below its 52 week high and 20% potential upside based on the consensus mean target price of $9.03 for the company. Micron was trading Tuesday for $7.56, down nearly 1% for the day.
Fundamentally, Micron has some positives. Micron's forward P/E is 15.20. Micron is expecting EPS to be up 190% next year according to Finviz.com. Micron is trading for slightly over book value and 97% of sales. Micron insider ownership has increased by 45% over the past six months.
Technically, Micron is in an uptrend. The stock reversed trends at the beginning of November. The stock broke through major resistance at the 50-day and 200-day smas and kept on going. This is bullish, yet the stock seems to have gone parabolic since the start of 2013. These types of moves are usually followed by a period of consolidation.
One positive for the stock was that Rambus Inc. (RMBS), the designer of high-speed memory chips, was barred by a judge from using 12 of its patents to demand royalties from Micron Technology Inc. because it improperly destroyed documents tied to intellectual-property litigation.
Furthermore, Goldman Sachs sees Micron moving higher based on an improving supply/demand balance. Goldman doesn't see NAND flash memory vendors making "meaningful capacity additions" through mid-2013, even though many have all cut supply lately. In the meantime, demand growth is steady and could see upside if cheaper solid-state drives are rapidly adopted.
On the other hand, Micron is focused on a segment of the market that is highly speculative. Technology changes rapidly which could render Micron's products obsolete. Furthermore, some of Micron's products are highly commoditized. This is inherently risky based on the fact you have no pricing power.
In the final analysis, Micron should benefit from this more favorable supply/demand balance. I believe the risk/reward is favorable for the longs here. I would wait for it to cool off some first though, or at least layer in to any position to reduce risk.
The Bottom Line
I believe these stocks are buys that have major upside potential in 2013. All of them are up big for 2013 and look somewhat frothy at current levels. I submit the next political hullabaloo in Washington regarding the debt limit may provide a pullback in these stocks. When stocks are negatively affected by transitory macro-economic events, this is often the time to buy. I see these stocks continuing to move higher as the year unfolds.
Use this information as a starting point for your own due diligence and research methods before determining whether or not to buy or sell a security. If you choose to start a position in any stock, I suggest layering in on a weekly basis at a minimum to reduce risk. Set a stop loss order to minimize losses even further if you wish.
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.