The market started out on a positive note as the Cypriot banking debacle seemed to be resolved over the weekend. Nevertheless, the gains were quickly wiped out when the Dutch finance minister stated the solution to the Cypriot banking problem may be used as a template for other countries. Quickly after this statement, the office of the Dutch finance minister announced that all situations are different so no template can be used, but that only served to bring the market back somewhat. See DJIA chart below.
The reality is Cyprus' liquidity issue may have been resolved, but it was on the backs of depositors. This opens a whole new can of worms so to speak. Nevertheless, I posit the Europeans will get their act together and any pullback will be another buying opportunity. Furthermore, we are trading at all-time highs so any bad news is used as an excuse to take profits.
Even so, the five stocks in this article were up Monday. This can often be a sign these specific stocks are poised to move higher. On down days, I identify the stocks in the green and take a closer look to see if there is good reason for the strength in the stock.
We will perform a review of the fundamental and technical state of each company. Furthermore, we will attempt to discern if any upside potential exists based on a sector, industry or company specific catalyst. The following table depicts summary and performance statistics for the stocks for Monday.
Apple Inc. (AAPL)
The company is trading 33% below its 52-week high and has 33% upside potential based on the consensus mean target price of $618 for the company. Apple was trading Monday for $464.94, up nearly 1% for the day.
Apple is fundamentally sound. Apple has a forward P/E ratio of 9.28, a PEG ratio of .55 and trades for approximately 10 times free cash flow. The company has no debt and $137 billion in cash. The company pays a dividend with a 2.29% 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 and recently broke above the 50-day sma. This has been a very bullish event historically for Apple.
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. Apple is a buy here.
Hewlett-Packard Company (HPQ)
HPQ is trading 6% below its 52 week high and 20% above its consensus mean target price of $18.72 for the company. HPQ was trading Monday for $23.19, up nearly 1% for the day.
HPQ fundamentals are improving. HPQ is trading for 6 times free cash flow. The company has a forward PE of 6.45. HPQ pays a dividend with a 2.3% yield.
Technically, HPQ is in a solid uptrend. Nevertheless, with an RSI of 77 the stock is currently overbought. The recent earnings beat has driven the stock higher in short order. The golden cross was recently fulfilled.
Meg Whitman has done a tremendous job improving free cash flow. By lowering capital expenditures and improving cash conversion cycles a significant increase in free cash flow could be achieved.
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 in.
Groupon, Inc. (GRPN)
The company is trading 69% below its 52-week high and 9% above the consensus mean target price of $5.46 for the company. Groupon was trading Monday at $5.99, up over 4% for the day.
Fundamentally, the stock has positives. The stock has a forward P/E ratio of 19 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 very soon.
Groupon has $1.2 billion of cash, no debt and expectations for success are very low. This sparks my contrarian interest. I was bullish on the stock prior to these developments. I was long the stock and recently took profits. I am looking for a pullback to get back in.
Cisco Systems, Inc. (CSCO)
The company is trading 5% below its 52-week high and has 12% potential upside based on the consensus mean target price of $23.44 for the company. Cisco was trading Monday at $20.92, up nearly 1% for the day.
Fundamentally, CSCO looks solid. Cisco has a forward P/E of 9.83. 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 2.60%. The company is trading at 13 times free cash flow.
Technically, Cisco has been performing well. The coveted golden cross has been achieved. The stock is currently consolidating just below the 50-day sma.
The proliferation of smartphones and other mobile devices should be a major profit driver for the company. Cisco predicts mobile data traffic will post a 66% CAGR from 2012 to 2017. Cisco is a long-term buy here, yet I would wait for it to break through the 50-day sma prior to starting a position.
Halliburton Company (HAL)
The company is trading 10% below its 52-week high and has 24% upside potential based on the consensus mean target price of $48.85 for the company. Halliburton was trading Monday for $39.45, up nearly 1% for the day.
Fundamentally, Halliburton has some positives. The company has a forward P/E of 9.91. Halliburton pays a dividend with a yield of 1.28%. Halliburton's expected EPS growth rate for next year is 32% and 15% over the next five years. The current net profit margin is 9%. Halliburton's PEG ratio is .86.
Technically, Halliburton has been on fire since June. The company gapped up after beating earnings. The stock recently took a drop in sympathy with dropping oil prices and is currently consolidating just below the 50-day sma.
Halliburton's profit streams are stable. The company is one of the oldest and most trusted oil service companies in the business. HAL practically invented fracking. With the proliferation of new unconventional shale plays being found around the world, you can bet your bottom dollar HAL will be extremely busy for the next several years. In my last missive regarding the stock I suggested waiting for a pullback to get in. The pullback has occurred - the stock is a buy here.
The Bottom Line
Down days are good for identifying prospective investing opportunities. It makes it slightly easier to find the needles in the haystack, so to say. These five stocks appear to be up for good reason and merit further due diligence.
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 to reduce risk. Furthermore, always maintain 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.