These five stocks have been hit pretty hard over the last week with the exception of Micron Inc. (MU) which is basically flat. Nevertheless, these are also the same stocks that were up big from the start of the year. All are on my watch list. Some have gotten downright interesting based on current valuations.
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.
Now, simply selecting $10 stocks trading with some strong fundamental data is only the first step to finding winners that may provide alpha. We need to see if these dogs can hunt. I will give my take on each stock below. You should perform further due diligence to determine if this is the time to start a position for yourself.
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.
Alcatel-Lucent, S.A. (ALU)
The stock is done 11% for the week. The company is trading 48% below its 52-week high and has 2% upside based on the analysts' mean target price of $1.37 for the company. ALU was trading Tuesday for $1.36, flat for the day.
Fundamentally, ALU has several positives. The company's EPS is expected to grow by 107% next year. ALU is trading for approximately 24% above book value. The company has $2.66 in cash per share. Book value per share is $1.10. The cash flow situation was greatly improved by a recent debt deal.
Technically, ALU has given back all its gains from the start of the year. The stock has broken through support at the 20-day and 50-day sma. The stock is resting 3% above the 200 day sma major support level.
ALU got smacked with a downgrade to Underweight from HSBC. The downgrade comes on the same day ALU and China Mobile (CHL) jointly announced a new lightRadio small cell base station. Sometimes it seems like analysts upgrade and downgrades are a counterintuitive indicator.
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 test support at the 200 day sma and reverse course prior to starting a position to reduce risk.
Groupon, Inc. (GRPN)
Groupon is down almost 7% for the week. The company is trading 73% below its 52-week high and has 4% upside potential based on the consensus mean target price of $5.76 for the company. Groupon was trading Tuesday at $5.55, down nearly 1% for the day.
Fundamentally, the stock has positives. The stock has a forward P/E ratio of 22 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 24% 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 then, 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 73% 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. They report earnings Wednesday after the bell. I think I would wait this one out. They may kitchen sink the quarter. You may get a better entry point after earnings. If I was already long I wouldn't sell it though.
Sirius XM Radio Inc. (SIRI)
SIRI is down 4% for the week. The company is trading 6% off its 52-week high and has 14% upside potential based on the analysts' mean target price of $3.48. Sirius stock was trading Tuesday for $3.06, up 1% for the day.
Fundamentally, this stock has several positives. SIRI has a forward P/E of 23, and trades for 28 times free cash flow. EPS for the next five years is expected to rise by 30%. Quarter-over-quarter sales and EPS are up 14% and 127% respectively. SIRI's TTM ROE is 98%, 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. Nevertheless, the stock seems to be weak here having just broken through the 50 day sma support level.
The big news is Sirius' Board of Directors has approved a $2 billion common stock repurchase program. Secondly, new car sales are up significantly and SIRI is a derivative play on the auto industry. SIRI is well positioned for organic growth. SIRI is only in the early innings of building out its footprint.
The company added 529K self-pay subscribers during the quarter, up 41% from last year's level. The subscriber growth was achieved without breaking the bank as subscriber acquisition costs rose 8.5% to $126.7M. You can read the transcript here.
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. I say it's a buy on this weakness.
Nokia Corporation (NOK)
The company is down 10% for the week. The company is trading 31% below its 52-week high and has 4% upside based on its consensus mean target price of $3.73 for the company. Nokia was trading Tuesday for $3.57, down almost 2% for the day.
Fundamentally, Nokia has several positives. Nokia is trading for 1.25 times book value, 35% of sales and has $3.56 in cash per share. EPS next year is expected to rise by 114%. Nokia pays a dividend with a 7.08% yield.
Technically, the stock had rebounded nicely since July but has faltered as of late. The stock is down 15% for the month.
Nokia's Lumia 720 and 520 were officially unveiled on Monday. The 720 features a 4.3" display and a 6.7MP camera. The 520 sells for $183 (helpful in emerging markets), and has a 4" display and 5MP camera. Both devices use dual-core Qualcomm (QCOM) Snapdragon processors. This news bodes well for Nokia's stock.
With a dividend yield of 7%, Microsoft's backing and the recent contract win in China the risk/reward ratio favors long trades. The stock is a buy here based on the fundamentals, but it's in no man's land technically. I would wait for the stock to show some sign of a trend reversal prior to starting a position.
Micron Technology Inc.
Micron is basically flat for the week. The company is trading 13% below its 52 week high and 17% potential upside based on the consensus mean target price of $9.29 for the company. Micron was trading Tuesday for $7.96, up slightly for the day.
Fundamentally, Micron has some positives. Micron's forward P/E is 15.30. Micron is expecting EPS to be up 195% next year according to Finviz.com. Micron is trading for slightly over book value and sales. Micron insider ownership has increased by 42% 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.
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. Micron should benefit from this more favorable supply/demand balance. I believe the risk/reward is favorable for the longs here. The stock has strong relative performance. I like it here.
The Bottom Line
I believe these stocks are buys that have major upside potential. All of them are down big for 2013. 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. Always have a well-balanced diversified portfolio to reduce risk.
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.