"A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be." - Wayne Gretzky
This is a great quote from Gretzky. I believe it pertains to the current situation in the equity markets. I posit 2013 will be a great year for the stock market. The stocks covered in this article are all on track to do well this year. All are already up solidly for the year. Google (GOOG) is up the most with a 13.97% gain while Intel (INTC) is up the least with a 3.09% gain. See chart below.
All of the stocks covered have solid secular growth stories. I posit each of them has robust catalysts for growth combined with notable upside going forward. Please review the following analysis of these stocks to determine if now is the right time to start a position.
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. The following table depicts summary statistics and Monday's performance for the stocks.
Cisco Systems, Inc. (CSCO)
The company is trading 4% below its 52-week high and has 13% potential upside based on the consensus mean target price of $23.44 for the company. Cisco was trading Monday at $20.73, down slightly for the day.
Fundamentally, CSCO looks solid. Cisco has a forward P/E of 9.87. Cisco's quarter-over-quarter EPS and sales growth rates are 46% and 5%, respectively. Cisco's net profit margin has increased to 19.72%. Cisco has a dividend with a yield of 2.69%. The company is trading at 13 times free cash flow.
Technically, Cisco has been performing well since bouncing off a low of 15 in late July. The stock has posted higher highs and higher lows since that time. The coveted golden cross has been achieved. The stock is currently consolidating at the 50 day sma.
Cisco is trading at a low price-to-earnings multiple even when taking into account lower earnings expectations. Furthermore, the stock is trading several multiples below the long-term norm.
The proliferation of smartphones and other mobile devices should be a major profit driver for the company. The average mobile user used 201 megabytes of data per month in 2012, more than twice the 92 megabytes per month consumed in 2011, according to this year's update to Cisco's Visual Networking Index. Cisco predicts mobile data traffic will post a 66% CAGR from 2012 to 2017. Cisco is a long-term buy here.
General Electric Company (GE)
The company is trading 2% below its 52 week high and has 8% potential upside based on the consensus mean target price of $25 for the company. GE was trading Monday at $23.16, down slightly for the day.
Fundamentally, GE looks undervalued. GE's forward P/E is 12.60. GE's quarter over quarter EPS and sales growth rates are 10% and 4%, respectively. GE's net profit margin is 10.11%. GE has a dividend with a yield of 3.28%.
Technically, GE has been in an uptrend since bouncing off a low of $18 in June. Recently, the stock has broken out to the upside after testing the 200-day sma twice in the last quarter. Currently the stock is consolidating just above the 20 day sma.
GE looks poised to take advantage of an upturn in growth in the emerging markets. If global growth does improve, GE will definitely grow along with it. GE raised its authorized stock buyback to $35 billion and plans to buy back $10 billion worth of shares in 2013. I like the stock here, yet would definitely layer in to any position.
The company is trading 1% above its 52-week high and has 4% potential upside based on the consensus mean target price of $851.60 for the company. Google was trading Monday at $820.59, up almost 2% for the day.
Fundamentally, Google looks solid. Google has a forward P/E of 15.09. Google's quarter-over-quarter EPS and sales growth rates are 6% and 36%, respectively. Google's net profit margin is 21.50%. The company is trading at 20 times free cash flow.
Technically, Google has been performing well since bouncing off a low of $650 in mid-November of 2012. The stock has posted higher highs and higher lows since that time. The stock is in a solid uptrend. Nevertheless, it has spiked up quite dramatically in recent days. The RSI is at 72 which signals shares are currently overbought.
Google is the new Apple (AAPL). The company is currently firing on all cylinders. The stock is at all times highs, yet the fundamentals currently support the price. Nevertheless, it is currently overbought according to the RSI. I like the stock here, yet would wait until the RSI falls below 70 to start a position.
The company is trading 25% below its 52-week high and has 8% upside potential based on the consensus mean target price of $22.96 for the company. Intel was trading Monday for $21.20, up 1% for the day.
Fundamentally, Intel has some positives. The company has a forward P/E of 9.87. Intel pays a dividend with a yield of 4.28%. The company has a net profit margin of 20.63%. The company is trading for slightly over two times book value and has a PEG ratio of .84.
Technically, the stock is in a long-term downtrend, yet has rallied back recently after missing earnings on January 17th. The stock has reversed direction but still needs to break through $23 to confirm a full reversal.
Intel has taken a beating recently due to the waning demand for PCs. Nevertheless, I wouldn't count them out. Intel has the wherewithal to transition into the new age of tech. Recently Intel acquired Altera (ALTR) as a chip foundry client. Altera has hired Intel to make FPGAs using next-gen 14nm manufacturing process and 3D transistor technology. I posit the stock is a solid buy at this point as the weak hands were shaken out after earnings. The risk/reward ratio favors longs.
Microsoft Corporation (MSFT)
Microsoft is trading 13% below its 52 week high and has 18% potential upside based on a consensus mean target price of $32.91 for the company. Microsoft was trading Monday for $26.73, up slightly for the day.
Microsoft is fundamentally undervalued. The company has a forward PE of 8.87. Microsoft is trading only 11 times free cash flow. Microsoft's ROE is 22.62%. The company pays a dividend with a 3.29% yield. The company's net profit margin is 21.20%.
Technically, Microsoft gapped down significantly and is currently trading for 8% above its 52 week lows. The stock tested the low of $26.50 several times over the last few months. Even so, currently the stock has begun to trend upward.
Microsoft is pulling out all the stops to keep itself in the game. The reception of the Windows 8 based phones seems to be a success. Furthermore, the business versions of Office 365 are officially out. I see Microsoft in much the same boat as Intel. I don't see it doubling anytime soon, yet don't see it dropping significantly from here. If you are looking for a solid company for a long-term investment Microsoft fits the bill.
The Bottom Line
I posit these stocks present excellent buying opportunities. Nonetheless, markets incessantly gyrate, the only constant is the fact that they always go up over the long haul. Look to buy on dips. These are long-term investments. The risk reward ratio for a long position in these stocks is currently favorable. There will be more volatility in the market going forward though. Remember, we are sitting at five year highs.
If you choose to start a position in any stock, I suggest layering in a quarter at a time at a minimum to reduce risk and always have a well-balanced diversified portfolio.
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.