These stocks are all on the comeback trail. All the stocks selected have been beaten down significantly recently for various reasons. Groupon (GRPN) has already begun to rally and is up 30% year to date while others have yet to gain much traction this year and are all flat for the year.
Despite their past poor performance, I see greener pastures in the near future provided by solid catalysts for growth. 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.
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 Tuesday.
Alcatel-Lucent, S.A. (ALU)
The company is trading 30% below its 52-week high and has 15% upside potential based on the analysts' mean target price of $1.64 for the company. ALU was trading Tuesday for $1.41, up over 1% for the day.
Fundamentally, ALU has some positives. The company's EPS is expected to grow by 108% next year. ALU is trading for 1.25 times book value. The company has $2.77 in cash per share. Book value per share is $1.12. Furthermore, the balance sheet and cash flow statement are much improved taking the cash burn worry out of the picture.
Technically, ALU just bounced off the bottom of the long-term uptrend channel. The stock recently achieved the golden cross, which is bullish. Nevertheless, the stock has been in a short-term downtrend for the past couple of months.
ALU recently received an upgrade from Deutsche Bank to Buy from Hold. DB says cost cuts, corporate changes, and "positive revenue and margin inflection" make for a compelling turnaround story. Furthermore, the bank says growth in the U.S. and China should mean improvement in revenue. This underpins my thesis on the stock.
I have been pounding the table on this stock for quite some time. In my latest missive regarding the stock I stated to wait three days prior to buying the stock based on the one day pop of 10%. It was been more than three days and the gains have held. The stock is a buy here.
Advanced Micro Devices, Inc. (AMD)
The company is trading 71% below its 52-week high and has 18% upside based on the consensus mean target price of $2.85 for the company. AMD was trading Tuesday for $2.41, up nearly 1% for the day.
AMD has some fundamental positives. EPS is expected to grow by 88% next year. The company trades for approximately 32% of sales. AMD has $1.40 in cash per share. Insider ownership is up 68% over the past 6 months.
Technically, the stock looks weak at present. The stock has been consolidating at the current level for the last four months after a precipitous drop. I see this as a positive, yet the stock has broken below support in recent days.
Hewlett-Packard Co. (HPQ) Moonshot servers featuring AMD's low-power Kyoto CPU will arrive in the second half of 2013. HPQ has praised AMD's GPU expertise. HPQ thinks the Kyoto CPU is well-suited for video and graphics tasks. AMD recently won contracts to have its chips power the new Microsoft (MSFT) XBOX and Sony (SNE) Play Station gaming consoles. All this recent news bodes well of the stock.
This would be a speculative buy, yet I posit the risk/reward equation favors longs at this point. I like the stock here, but definitely scale into any position.
Ford Motor Co. (F)
The company is trading 8% below its 52-week high and has 16% upside based on the analysts' mean target price of $15.14 for the company. Ford was trading Tuesday for $13.03, up almost 1% for the day.
Fundamentally, Ford has several positives. The company has a forward P/E of 7.75. 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 3.10% and has a PEG ratio of 0.87 and a net profit margin of 4.22%.
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. Now the stock is in breakout position at the apex of a descending triangle.
Ford states it will double its market share in China over the next three years as new products hit the Chinese market. Ford thinks the new Kuga sports utility vehicle, EcoSport compact SUV, and Mondeo mid-size sedan will help it reach 6% of the Chinese passenger car market by 2016. Moreover, Ford's March U.S. sales were up 5.7% to 236,160 vehicles, beating the estimate of analysts calling for a 4.4% gain. The solid month was led again by the Ford Fusion model with sales of 30,284 vehicles to set an all-time record.
Ford's issue has been Europe. Nevertheless, they have implemented a European right sizing program for the last few quarters. Improving sales in China and U.S. coupled with Ford stopping the bleeding in Europe, I posit Ford is set to breakout to the upside. Ford is a buy here.
Facebook Inc. (FB)
Facebook is trading 40% below its 52-week high and has 23% potential upside based on a consensus mean target price of $33.16 for the company. Facebook was trading Tuesday for $26.98, up almost 2% for the day.
Facebook's fundamentals are mixed. The company has a forward P/E of 34. EPS for the next five years is expected to rise by 30% and 36% next year. Sales are up quarter-over-quarter and the company has a net profit margin of 1%.
Technically, Facebook looks mixed. The stock has achieved the coveted golden cross, yet has recently broken through support at the 50-day sma.
Facebook recently unveiled a modified version of Android with deep native Facebook functionality that may live on an HTC handset. Now, news is out that Facebook is in the process of offering this service on Apple (AAPL) and Microsoft devices as well. I think this is a great move by the company. Eric Schmidt considers Facebook Home "fantastic" due to how it demonstrates Android's openness, and says Google (GOOG) won't try to ban it.
The new attitude of Facebook's management has impressed me. Also, mobile revenues were up substantially last quarter. I like the stock here. Facebook is a buy at this level.
The company is trading 57% below its 52-week high and 105% above the consensus mean target price of $5.49 for the company. Groupon was trading Tuesday at $6.45, up nearly 3% for the day.
Fundamentally, the stock has positives. The stock has a forward P/E ratio of 21 and trades for 25 times free cash flow. Sales are up 30% quarter over quarter. EPS next year is expected to rise by 50% and by 24% for the next five years and is up 90% this year.
Technically, the stock has leveled off and began trending upward. The stock has rebounded 50% and broke through all three major resistance levels. The 50-day sma has turned up and the golden cross has been fulfilled.
Gene Munster is bullish on the company arguing the company could deliver a first quarter daily deal take rate of 33%. Munster believes this would translate into revenue of $607 million beating consensus estimates.
Furthermore, Groupon is investing heavily in creating a broad assortment of local commerce tools and services for merchants. This should help support and diversify revenue. Groupon has $1.2 billion of cash, no debt and expectations are low. I like the stock here for a long-term speculative play.
The Bottom Line
I believe these stocks are buys that have the potential to outperform in 2013. I see these stocks moving higher as the year unfolds. Nevertheless, with the market trading at all-time highs and the wall of worry continuing to grow, I posit it is important to scale into any position and keep some powder dry in case we have further downside near-term. Look for stocks that have strong catalysts for growth.
As always, be sure 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 further if necessary.
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.