These are five stocks on my watch list that have had very intriguing developments occur over the past week. All of them have had major news out recently that is moving the stocks higher. The stocks covered in this article are buying opportunities with positive momentum and catalysts for upside.
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 as well as analyze the recent catalysts to determine if this is the right time to buy. The following table depicts summary statistics and Monday's performance for the stocks.
Apple Inc. (AAPL)
The company is trading 34% below its 52-week high and has 35% upside potential based on the consensus mean target price of $615 for the company. Apple was trading Monday for $457, up over 3% for the day.
Apple is fundamentally sound. Apple has a forward P/E ratio of 8.91, a PEG ratio of .53 and trades for approximately 9.5 times free cash flow. The company has no debt and $137 billion in cash. The company pays a dividend with a 2.39% 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. Apple just broke through long-term resistance which is extremely bullish. See chart below.
We are on the cusp of the one year anniversary of Apple's first announcement regarding paying a dividend. Many are projecting Apple will soon announce a dividend increase very soon. I posit this was the catalyst for the rally in the stock on Monday. A Bloomberg poll of six analysts found an average forecast for a 56% increase in the company's quarterly dividend to $4.14 per share, or $15.7 billion per year yielding 3.7%. I see this as a major buying opportunity. The long term uptrend is intact. The move today underpins my thesis.
Bank of America Corporation (BAC)
The company is trading at its 52-week high and 3% above its consensus mean target price of $12.24 for the company. BAC was trading Monday at $12.68, up almost 1% for the day.
Fundamentally, BAC has several positives. The company has a forward P/E of 9.60. BAC has a net profit margin of 5.03%. BAC is trading for approximately 57% of book value. Insider ownership is up by 33% over the last six months. EPS next year is expected to rise by 30% 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.
Although BAC did not increase the dividend after passing the Fed's stress test, they blew the street estimates away by announcing a mammoth $10.5 billion share repurchase program and the redemption of high-yielding preferreds. This has propelled the stock to new 52 week highs. Nevertheless, the stock has much more room to run. The stock is still trading at a 40% discount to book value. With Corbat at the helm, cutting cost and selling off non-core assets, I see significant upside in the stock going forward.
BlackBerry Inc. (BBRY)
The company is trading 18% below its 52-week high, yet 28% above the consensus mean target price of $10.90 for the company. BlackBerry was trading Monday for $15.16, up almost 1% for the day.
Fundamentally, BBRY has many positives. The company's net profit margin is improving quarter over quarter. The company trades for 9.5 times free cash flow and 83% 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.
I was long the stock but stopped out when the stock began to lose altitude after spiking to $16 on news of a one million unit order. Goldman's Simona Jankowski sees 2 to 3 million BB10 shipments apiece for the May and November quarters. Jankowski says Z10 checks at nearly 40 stores in 4 countries indicate "most stores had a successful launch week, followed by steady demand." Jefferies' Peter Misek says his checks indicate build orders have been raised 3 times in 6 weeks, and speculates the 1 million unit order likely came from a U.S. carrier or a top distributor.
BlackBerry CEO Thorsten Heins took a jab at Apple's iPhone Monday. According to a WSJ article, Mr. Heins highlighted the "fantastic job" Apple did in designing the iPhone, yet goes on to say that Apple's underlying operating system is outdated.
BBRY's BlackBerry Z10 has been long awaited. With the launch of the BlackBerry Z10, I posit the sales numbers will impress. With an earnings report looming the stock is definitely in play. I posit they will definitely beat expectations. I am looking to get back in prior to earnings.
Hewlett-Packard Company (HPQ)
HPQ is trading 8% below its 52 week high and 20% above its consensus mean target price of $18.30 for the company. HPQ was trading Monday for $22.75, up nearly 3% 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 86 the stock is currently overbought. The recent earnings beat has driven the stock higher in short order. The golden cross was recently fulfilled.
An upgrade to Overweight from Morgan Stanley's Katy Huberty caused HPQ to touch levels last seen in spring 2012. Huberty praises Meg Whitman for getting execs to consider the free cash flow implications of their moves as compared to the traditional focus on revenue and earnings per share. Huberty thinks lower capital expenditures and an improved cash conversion cycle could lead to $3.45 per share in annual free cash flow, a full $1 per share better than forecasted.
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 am hoping for a pullback to get back in.
Groupon, Inc. (GRPN)
The company is trading 71% below its 52-week high and 2% above the consensus mean target price of $5.38 for the company. Groupon was trading Monday at $5.49, up almost 2% for the day.
Fundamentally, the stock has positives. The stock has a forward P/E ratio of 18.27 and trades for 22 times free cash flow. Sales are up 30% quarter over quarter. EPS next year is expected to rise by 50% and by 22% 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.
Groupon Hong Kong Monday announced that it is teaming up with Oriental Press Group to provide a daily deals platform for users on its flagship portal - on.cc. Beginning from today, users of the portal will be able to directly access Groupon Hong Kong's daily deals. I posit this is significant news for the stock. Furthermore, Bill Miller, a well-respected value investor, stated,
"Groupon's got a $1.2 billion of cash. They have no debt. Although investors have been wary of Groupon, the opportunity here is tremendous. Expectations are low. The stock is very cheap."
I was bullish on the stock prior to these developments. I am looking to start a position in the near future.
The Bottom Line
These stocks have the potential for significant upside over the coming years. These stocks have solid long-term growth stories and near term catalysts. We are talking about investing, not trading, so take your time and build your position slowly by scaling in. Furthermore, always remember to have a well-balance diversified portfolio containing several different asset classes to reduce risk. The markets were rattled Monday by new Eurozone developments emanating from Cyprus. This may provide a buying opportunity in these stocks.
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 is 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.