These stocks are all on the comeback trail. All the stocks selected have been beaten down significantly recently for various reasons. Some have already begun to march back to previous levels while others have yet to gain much traction such as Apple Inc. (AAPL), currently trading only 3% above its 52 week low.
Despite their past transgressions, I see greener pastures in the near future provided by solid catalysts. In the following sections we will dig deeper and attempt to determine if these dogs can truly hunt. Nonetheless, this is no substitute for doing your own due diligence.
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 Thursday's performance for the stocks.
Alcatel-Lucent, S.A. (ALU)
The company is trading 39% below its 52-week high and is trading on par with the analysts' mean target price of $1.50 for the company. ALU was trading Thursday for $1.50, up nearly 5% for the day.
Fundamentally, ALU has several positives. The company's EPS is expected to grow by 123% next year. ALU is trading for 1.3 times book value. The company has $2.75 in cash per share. Book value per share is $1.11. Furthermore, the balance sheet and cash flow situation has been addressed.
Technically, ALU is neither overbought nor oversold with an RSI of 51. The stock recently achieved the coveted golden cross which is bullish. Furthermore, the stock confirmed support by bouncing off the 200-day sma recently and is hugging the bottom of the uptrend channel.
ALU traded higher Thursday most likely due to China Mobile (CHL) announcing it forecasts a 49% year over year increase in capital expenditures in 2013 to $30.6 billion. Furthermore, Vodafone's and France Telecom's plans to build a fiber network in recession-hit Spain might be a catalyst for the stock as well. Moreover, ALU's cash flow worries seem to be well behind it at this point. I like the stock here.
The company is trading 38% below its 52-week high and has 45% upside potential based on the consensus mean target price of $627 for the company. Apple was trading Thursday for $432, up nearly 1% 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 2.47% 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 five 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. Please review the chart below.
Apple is currently completely out of favor. You don't hear hardly anyone stating it's time to step up and buy stock. Yet, the company has $137 billion in cash and arguably some of the best minds in the business. With all the weak hands shook out and the stock consolidating for several weeks, I see this as a major buying opportunity. The long term uptrend is intact. I posit the rumors of Apple's demise are greatly exaggerated.
BlackBerry Inc. (BBRY)
The company is trading 17% below its 52-week high, yet 28% above the consensus mean target price of $10.90 for the company. BlackBerry was trading Thursday for $15.27, down almost 3% for the day.
Fundamentally, BBRY has many positives. The company's net profit margin is improving quarter over quarter. The company trades for 8 times free cash flow and 73% of book value. BBRY has no long-term debt. EPS is expected to rise by 64% next year.
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. 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. They just received the largest order in their history on Wednesday. Rumors of a potential buyout combined with evidence of blowout sales should send the shorts running for the door. Now is the time to buy this stock.
Hewlett-Packard Company (HPQ)
HPQ is trading 12% below its 52 week high and 17% above its consensus mean target price of $18.07 for the company. HPQ was trading Thursday for $21.73, up nearly 2% for the day.
HPQ fundamentals are improving. HPQ is trading for 5.58 times free cash flow. The company has a forward PE of 5.99. HPQ pays a dividend with a nearly 2.5% yield.
Technically, HPQ is in a solid uptrend. Nevertheless, with an RSI of 81 the stock is currently overbought. The recent earnings beat has driven the stock higher in short order. The golden cross was recently fulfilled.
HPQ is in the midst of a reinvention and turnaround program that seems to be gaining traction. Couple this with Meg Whitman's propensity to under promise and over deliver and you have a recipe for further upside. I was long the stock going into earnings and recently took profits. I am hoping for a pullback to get back in. The stock is a buy.
Micron Technology Inc. (MU)
The company is trading at its 52-week high and 4% above the consensus mean target price of $9.33 for the company. Micron was trading Thursday for $9.72, up over 2% for the day.
Fundamentally, Micron has some positives. Micron's forward P/E is 17. Micron is expecting EPS to be up 204% next year according to Finviz.com. Micron is trading for a slight premium to book value and sales. Micron insider ownership has increased by 39% 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. The golden cross was achieved in early January. With the RSI at 78 the stock is currently overbought at this time.
Bernstein recently upgraded its stance on the global DRAM industry to Overweight. This is good news for Micron. The first signs of improved pricing for PC DRAM arrived about two months ago, when the rally in Micron began. Production cuts and industry consolidation have stabilized DRAM prices in spite of weak PC demand. Micron should benefit from this more favorable supply/demand balance. I believe the risk/reward is favorable for the longs here with the stock trading close to book. As always, scale into the position. This one has run quite a bit recently.
The Bottom Line
I believe these stocks are buys that have major upside potential in 2013. I see these stocks continuing to move higher as the year unfolds. Nevertheless, with the market trading at all-time highs, I posit it is important to look for stocks that have strong catalysts for growth.
Furthermore, always remember to maintain a well-balanced diversified portfolio containing several asset classes. 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 scaling in to any position 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.