With the markets trading at all-time highs and the possibility of the Eurozone crisis rearing its ugly head again, it appears the market may be heading for a correction. The jobs number beat by a mile on Friday yet the market barely flinched. This leads me to believe stocks may be getting somewhat frothy. Markets do not go up in a straight line. Market corrections create opportunities to buy stock in solid companies with sound prospects at a discount. Hopefully when it happens you have some dry powder and can take advantage. The market is clearly at an inflection point. A market correction provides opportunity to buy great names at a discount price. I have selected five stocks I posit have significant upside going forward.
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 start a position. The following table depicts summary statistics and Friday's performance for the stocks.
Apple Inc. (AAPL)
The company is trading 38% below its 52-week high and has 46% upside potential based on the consensus mean target price of $630 for the company. Apple was trading Friday for $431, up flat for the day.
Apple is fundamentally sound. Apple has a forward P/E ratio of 8.52, a PEG ratio of .51 and trades for approximately 9 times free cash flow. The company has no debt and $137 billion in cash. The company pays a dividend with a 2.46% yield. Margins took a hit yet the company still achieved a 25.35% net profit margin.
Apple has been in a well-defined downtrend for the past few months. The stock has fallen for a high of over $700 to a low of approximately $420 after announcing earnings. The stock has been consolidating at this level for the past month. Although the stock has shown weakness in the short term, the long-term uptrend support line seems to be holding up.
Apple is currently completely out of favor. You don't hear hardly anyone stating it's time to step up and buy stock. John Templeton, a famed investor, stated,
"The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell."
This seems to be the case with Apple right now. Bargain hunters appear to be buying the stock. The company has $137 billion in cash and arguably some of the best minds in the business. Steve Jobs may be gone. However he left an indelible imprint on Tim Cook and the rest of the team. I wouldn't count them out just yet. I imagine they have a few more tricks up their proverbial sleeve. I see this as a major buying opportunity.
Bank of America Corporation (BAC)
The company is trading 3% below its 52-week high and has 3% potential upside based on a consensus mean target price of $12.40 for the company. BAC was trading Friday at $12.05, down almost 2% for the day.
Fundamentally, BAC has several positives. The company has a forward P/E of 9.50. BAC has a net profit margin of 5.03%. BAC is trading for approximately 56% of book value. EPS next year is expected to rise by 29% and the company pays a dividend with a yield of .33%.
Technically, BAC is in a solid uptrend. The coveted golden cross was fulfilled earlier this year. The stock has been in a solid uptrend since mid-July. The stock is currently trading above all three major support levels. The stock is technically solid here.
Bank of America has a fortress balance sheet. BAC's success at cutting costs, improved capital position and the likelihood of higher capital returns are all huge positives going forward. The uptick in the housing market and the steepening of the yield curve due to demand for long-term capital are strong buy indicators for the banks. BAC just passed the Fed stress test. Next Thursday BAC will announce its capital return plans. I see the as a very positive long term catalyst for the stock.
BlackBerry Inc. (BBRY)
The company is trading 28% below its 52-week high, yet 17% above the consensus mean target price of $10.90 for the company. BlackBerry was trading Friday for $13.11, down slightly for the day.
Fundamentally, BBRY has some positives. The company's net profit margin is negative, but improving quarter over quarter. The company trades for 8 times free cash flow and 73% of book value.
Technically, BBRY has been in a long-term uptrend since hitting a low of $6 in late September. The stock is currently trading at the very bottom of the uptrend channel. The RSI is approaching oversold levels. This is precisely the time to start a position.
BBRY's BlackBerry Z10 has been long awaited. With the launch of the BlackBerry Z10, I posit the sales numbers will impress. The stock should be in for a run as the loyal BBRY subscribers upgrade their devices. Now is the time to buy this stock.
Ford Motor Co. (F)
The company is trading 9% below its 52-week high and has 17% upside based on the analysts' mean target price of $15.14 for the company. Ford was trading Friday for $12.94, up nearly 1% for the day.
Fundamentally, Ford has several positives. The company has a forward P/E of 7.64. Ford is trading for 18 times free cash flow and approximately 3 times book value. EPS next year is expected to rise by approximately 20%. The company pays a dividend with a yield of 3.12% and has a PEG ratio of 0.86 and a net profit margin of 13.36%.
Technically, Ford is currently in a well-defined uptrend. The stock has been in a solid uptrend since the last quarter. The stock achieved the coveted golden cross where the 50-day sma crosses above the 200-day sma. The stock just successfully tested support at the bottom of the uptrend channel.
The probabilities of a rebound in the US housing market coupled with the fact that the average age of cars on the road is 11 years should provide a significant catalyst for the stock. Ford's issues are in Europe. Nevertheless, they have been working on right sizing European operation for the last few quarters. In my last missive regarding the stock I stated to wait for confirmation of support. This has occurred. I like the stock here.
Facebook Inc. (FB)
Facebook is trading 38% below its 52-week high and has 21% potential upside based on a consensus mean target price of $33.59 for the company. Facebook was trading Friday for $27.83, down nearly 3% for the day.
Facebook's fundamentals are mixed. The company has a forward PE of 36. EPS for the next five years is expected to rise by 30%. Sales are up quarter-over-quarter and the company has a net profit margin of 1%.
Technically, Facebook looks solid. The stock has achieved the coveted golden cross. It has recently fulfilled a cup and handle formation with usually precedes a breakout to the upside.
The new attitude of Facebook's management and Mark Zuckerberg impressed me at their recent presser where they announced the new news feed. Also, mobile revenues were up substantially last quarter. The potential new revenue streams created by the gift program and enhanced news feed intrigues me. This is a change in stance from me regarding the stock. I like the stock here.
The Bottom Line
I posit these stocks present excellent buying opportunities. The potential is great for them to rise significantly from current levels. Nevertheless, markets incessantly gyrate, the only constant is the fact that they always go up over the long haul. With another debt ceiling debate in May on the horizon and the usual sell in May and go away phenomenon possibly kicking in, I would keep some powder dry to pick up shares in these names.
These are long-term investments. If you try to trade the market during these volatile times, you will most certainly get crushed. The risk-reward ratio for a long position in these stocks is currently favorable. Nevertheless, there will be more volatility in the market going forward though. Remember, we are sitting at five-year highs so keep some powder dry.
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. Always remember to have a well-balanced highly diversified portfolio containing several different asset classes.
Disclosure: I am long BAC.
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.