These five stocks have rallied substantially since the beginning of 2013. On average these stocks are up 15% year-to-date. Micron Technology Inc. (MU) is up the most at 23.66% while Sirius XM Radio Inc. (SIRI) is up the least at 9.00%. 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 Wednesday's performance for the stocks.
Alcatel-Lucent, S.A. (ALU)
The stock is up 21.58% year-to-date. The company is trading 36% below its 52-week high and is currently trading 17% above the analysts' mean target price of $1.45 for the company. ALU was trading Wednesday for $1.74, up nearly 3% for the day.
Fundamentally, ALU has several positives. The company's EPS is expected to grow by 271% this year and 55.60% next year. ALU is trading for approximately 86% of book value. The company has $2.69 in cash per share. Book value per share is $1.96.
Technically, ALU has broken above a major resistance level where it previously 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. The stock is on the cusp of achieving the coveted golden cross which is very bullish.
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. With the stock breaching major resistance and on the verge of fulfilling a golden cross, I say it's a buy at this level, even though it's had quite a run already.
Micron Technology Inc. (MU)
Micron is up 23.66% year-to-date. The company is trading 16% below its 52-week high and 16% potential upside based on the consensus mean target price of $9.00 for the company. Micron was trading Wednesday for $7.74, down over 1% for the day.
Fundamentally, Micron has some positives. Micron's forward P/E is 15.20. Micron is expecting EPS to be up 192% next year. Micron is trading for slightly over book value and one times 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. Recently, the stock achieved the golden cross which has been a very valuable buy indicator for me.
Micron should benefit from a more favorable supply/demand balance due to changes in the market. I believe the risk/reward is favorable for the longs here. With the stock achieving the golden cross recently, I see no reason why it won't continue higher. I like the stock here.
Nokia Corporation (NOK)
The company is up 16.96% year-to-date. The company is trading 14% below its 52-week high and 31% above its consensus mean target price of $3.23 for the company. Nokia was trading Wednesday for $4.68, up almost 2% for the day.
Fundamentally, Nokia has several positives. Nokia is trading for 1.66 times book value, 42% of sales and has $3.20 in cash per share. EPS next year is expected to rise by 107.10%. 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, yet trading at the top of the uptrend channel.
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.
With a dividend yield of nearly 5.47% Microsoft's backing and the recent contract win in China the risk/reward ratio looks excellent for the stock at this point. Nevertheless, I would wait for a pullback to the midpoint of the uptrend channel prior to starting a position.
Sirius XM Radio Inc. (SIRI)
SIRI is up 9% year-to-date. The company is trading 2% off its 52-week high and has 5% upside potential based on the analysts' mean target price of $3.28. Sirius stock was trading Wednesday for $3.13, down nearly 1% 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 should underpin the stock at this level. Secondly, new car sales are up significantly and SIRI is a derivative play on the auto industry. SIRI is well positioned for organic growth and actually added two million new subscribers last year.
The recent positive news regarding new car sales and a share buyback program bodes well for the stock. The risk reward favors long trades at this point.
MEMC Electronic Materials Inc. (WFR)
The stock is up 21% for the year. The company is trading 32% below its 52-week high and on par with the consensus mean target price of $4.15 for the company. WFR was trading Wednesday for $4.05, up over 4% for the day.
Fundamentally, WFR has some positives. The company has a forward P/E of 19. The company is trading for 1.5 times book value and 34% of sales. WFR's EPS is up 139% quarter-over-quarter.
Technically, the stock looks like it may have put in a bottom at the $2 mark. The stock has been on a roll and is in a solid uptrend. All major moving averages are now trending upward and the golden cross has been achieved.
WFR is on the comeback trail. With the potential for a pick-up in global growth on the horizon, I see WFR moving even higher. I would get in prior to earnings on February 11. The stock has had quite a run, but still has much more upside in the tank.
The Bottom Line
I believe these stocks are buys that have major upside potential in 2013. All have started out 2013 with a bang. With the prospects for an improving global economy on the horizon, I see these stocks continuing to move higher.
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.