The stocks covered in this article are well positioned for upside in 2013 based on macroeconomic, sector or company specific catalysts coupled with fundamental buying opportunities. However, many are trading at significant discounts to historical norms. With the market at all-time highs, I have selected five stocks that still have notable potential upside. I posit they are worth a look.
In my opinion, the following stocks have clear near-term catalysts for growth and may outperform the market indices in 2013. I posit this is just the beginning for these stocks, which may present excellent buying opportunities at current levels.
Additionally, the five stocks are trading at or below $10. Stocks trading for $10 or less tend to be more volatile with frequent, larger percentage moves in the stock price. This provides the opportunity for greater returns (or losses) relative to the market or more bang for your buck so to say.
In the following sections, we will perform a review of the fundamental and technical state of each company followed by an analysis of the underlying catalysts and downside risks for the stocks. The following table depicts summary statistics and Tuesday's performance for the stocks. The following charts are provided by Finviz.com.
Alcatel-Lucent, S.A. (ALU)
The company is trading 45% below its 52-week high and has 22% upside potential based on the analysts' mean target price of $1.64 for the company. ALU was trading Tuesday for $1.34, up nearly 1% for the day.
Fundamentally, ALU has some positives. The company's EPS is expected to grow by 107% next year. ALU is trading for 1.2 times book value. The company has $2.74 in cash per share. Book value per share is $1.11. Furthermore, the balance sheet and cash flow statement are much improved.
Technically, ALU is getting close to being oversold with an RSI of 37. The stock recently achieved the golden cross, which is bullish. Nevertheless, the stock has broken through support at the long-term uptrend line and is now testing major support at the 200-day sma.
ALU and China Mobile (CHL) unveiled an innovative new member of the "lightRadio" family that will help accelerate deployment of 4G TD-LTE technology across China. China is the largest and fastest growing mobile market in the world as it continues to meet fast rising customer demand for mobile video and data. This is a huge development for ALU. Moreover, ALU's cash flow worries seem to be well behind it at this point.
I see this pullback as a buying opportunity. Picking up shares at the 200-day sma has worked historically. I like the stock here.
Nokia Corporation (NOK)
The company is trading 36% below its 52-week high and has 12% upside based on its consensus mean target price of $3.69 for the company. Nokia was trading Tuesday for $3.30, up over 1% for the day.
Fundamentally, Nokia has several positives. Nokia is trading for 1.17 times book value, 32% of sales and has $3.50 in cash per share. EPS next year is expected to rise by 166% and is up over 118% quarter-over-quarter.
Technically, the stock is not looking good at this time. The stock has been in a free fall since the start of the year giving back all its gains since breaking above the 200-day sma in November of last year. Nonetheless, what was once resistance now becomes support. The stock is now trading 6% above the 200-day sma.
With Microsoft's backing, the launch of new low-end phones and the recent contract win in China, the risk/reward ratio in the stock seems favorable at this point. Even so, I would wait for it to test support at the 200-day prior to starting a position.
Sirius XM Radio Inc. (SIRI)
The company is trading 5% off its 52-week high and has 13% upside potential based on the analysts' mean target price of $3.48. Sirius stock was trading Tuesday for $3.09, up nearly 1% for the day.
Fundamentally, this stock has several positives. SIRI has a PEG ratio of .21. The PEG ratio is indicating SIRI is substantially undervalued. SIRI has a forward P/E of 23, and trades for 28 times free cash flow. EPS for the next five years is expected to rise by 30%. Quarter-over-quarter sales and EPS are up 14% and 127% respectively. SIRI's TTM ROE is 98%, and the company's net profit margin is 103%. What is not to like?
Technically, Sirius stock has been in a well-defined uptrend since the start of July. The coveted golden cross was achieved by the stock in August. The stock has bounced off the bottom on the uptrend line several times over the past year. Support has not failed once. This is precisely the time to pick up shares.
Sirius is making all the right moves and has several catalysts in front of it. First, the Board of Directors has approved a $2 billion common stock repurchase program, which has been long awaited by loyal shareholders. Secondly, new car sales are at their highest level in five years and two-thirds of new cars have the radio installed. With a 50% conversion rate of trial subscribers, SIRI is well positioned for organic growth. SIRI is only in the early innings of building out its footprint.
The company recently added 529K self-pay subscribers during the last quarter, up 41% from last year's level. The subscriber growth was achieved without breaking the bank as subscriber acquisition costs rose 8.5% to $126.7M.
The lack of a permanent CEO has been a drag on the stock, yet I see it as a buying opportunity. The recent positive news regarding new car sales and a share buyback program bodes well for the stock. Furthermore, I believe the CEO announcement will be a catalyst for the stock as well. I like the stock at this level.
Micron Technology Inc. (MU)
The company is trading 3% below its 52-week high and 3% potential upside based on the consensus mean target price of $10.26 for the company. Micron was trading Tuesday for $9.92, up nearly 1% for the day.
Fundamentally, Micron has some positives. Micron's forward P/E is 14.11. Micron is expecting EPS to be up 245% next year according to Finviz.com. Micron is trading for a slight premium to book value and sales. Micron insider ownership has increased by nearly 40% 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.
PC DRAM prices have continued to soar in the face of weak OEM demand. Furthermore, industry consolidation has left Samsung (SSNLF.PK), Micron (MU +3.5%) and SK Hynix controlling 90% of the 2013 market which should underpin pricing. Micron should benefit from this more favorable supply/demand balance. I believe the risk/reward still favors longs. I continue to back the stock, but would wait a few days for the stock to cool down. The stock popped 10% after earnings were announced last week. You can read the transcript here.
Zynga, Inc. (ZNGA)
The company is trading 75% below its 52-week high, and is trading 14% upside based on the analysts' mean target price of $3.84. ZNGA was trading Tuesday for $3.36, down over 3% for the day.
Fundamentally, ZNGA has a few positives. EPS is expected to grow by 80% next year and 21% over the next five years. The stock is trading for 1.46 times book value, and has $1.64 in cash per share.
Technically, the stock seems to have found a bottom at this level. The stock has been trading sideways since late July. Nevertheless, the trend is positive and the stock popped above the long-term downtrend line on Monday. The coveted golden cross appears imminent.
Recent developments regarding online poker being legalized bodes well for the stock. I posit the risk/reward ratio favors the longs at the point. In my last missive regarding the stock I stated to wait for a pullback to get in. This is that opportunity. The stock is trading just above the 200-day sma. I like the stock here.
The Bottom Line
The risk/reward ratio for these stocks looks favorable for long trades at the time. We are talking about investing in these stocks for the long haul. I suggest you take your time and layer into any new positions. With the markets at all-time highs, there may be more buying opportunities ahead for 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 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.