It seems as though the sell in May and go away phenomenon is set to kick in once again. The recent uptick in volatility is a major tell. Furthermore, as usual, the sentiment of the market has turned completely bearish in very short order. The fact that it happens at the exact same time every year is somewhat suspect.
Even so, I have come to embrace this event as an opportunity to pick up shares at a discount in solid stocks. In the following sections I will review five stocks on my watch list I am looking to buy at a discount. When macroeconomic and geopolitical events drive good stocks down hopefully you have some dry powder and can take advantage. These stocks are all long-term investments with solid secular stories for future growth.
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. The following table depicts summary statistics and Thursday's performance for the stocks.
Apple Inc. (AAPL)
The company is trading 44% below its 52-week high and has 56% upside potential based on the consensus mean target price of $612.47 for the company. Apple was trading Thursday for $392.05, down nearly 3% for the day.
Apple is fundamentally sound. Apple has a ridiculous forward P/E ratio of 7.92, a PEG ratio of .47 and trades for approximately 8 times free cash flow. The company has no debt and $137 billion in cash. The company pays a dividend with a 2.70% 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 from a high of over $700 to a low of approximately $391 on Thursday. The stock is technically broken.
The crazy thing about Apple is when it was going up, you couldn't find a person who did not like the stock. Now that Apple has fallen out of favor, you can't find a person who likes the stock. They are due to report earnings on April 23rd. I would definitely stay out of the stock prior to earnings. I posit whatever they say the market will not like it and the stock will sell off even further. This will be the opportunity. Look for a massive crescendo of selling to get in.
The reasons I am still bullish on Apple is I believe Apple will raise the dividend, launch a low end iPhone to address emerging markets and regain their innovative status by introducing the iWatch and iTV later this year. These catalysts along with their normal product refresh cycle kicking in makes this stock a buy, but wait until after earnings.
BlackBerry Inc. (BBRY)
The company is trading 126% below its 52-week high, yet 19% above the consensus mean target price of $10.90 for the company. BlackBerry was trading Thursday for $13.50, down nearly 3% for the day.
Fundamentally, BBRY has many positives. The company's profit margin is improving quarter over quarter. The company trades for 9 times free cash flow and 74% 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 low end of the current uptrend channel. This has been the ideal time to get in historically.
The company has a large portion of the current subscriber base waiting for the Q10 phone with the QWERTY keyboard. I think this will be a big catalyst for the stock in the second half of 2013. The stock is a buy here, but scale in to the position over the summer months. The indiscriminate selling may just be starting.
Cisco Systems, Inc. (CSCO)
The company is trading 6% below its 52-week high and has 14% potential upside based on the consensus mean target price of $23.53 for the company. Cisco was trading Thursday at $20.58, down slightly for the day.
Fundamentally, CSCO looks solid. Cisco has a forward P/E of 9.80. 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 3.30%. The company is trading at 13 times free cash flow.
Technically, Cisco has been performing well. The golden cross was achieved. The stock is currently consolidating just below the 50-day sma which has been an ideal time to pick up shares.
Cisco recently bumped its quarterly dividend 21% to $0.17/share. The annualized yield on the stock is now 3.30%. Furthermore, Cisco is on the cutting edge of network hardware innovation. This makes Cisco the hands down winner in the networking space which is growing by leaps and bounds.
Sirius XM Radio Inc. (SIRI)
The company is trading 8% off its 52-week high and has 16% upside potential based on the analysts' mean target price of $3.48. Sirius stock was trading Thursday for $2.98, down 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 27 times free cash flow. EPS for the next five years are 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 102%.
Technically, Sirius is still in good shape. The stock has been consolidating at the current level since the beginning of the year. One negative is the breach below the 50-day sma.
The recent positive news regarding new car sales and a share buyback program bodes well for the stock. I see the consolidation in the stock at this level as very bullish. I would wait until after earnings are released on April 29th prior to starting a position though.
Yahoo Inc. (YHOO)
The company is trading 7% below its 52-week high and 2% above the consensus mean target price of $23.31 for the company. YHOO was trading Thursday for $23.26, down almost 2% for the day.
Fundamentally, YHOO has some positives. The company has a forward P/E of 19.07. The company has a net profit margin of 66%. The company has a PEG ratio of .49 and trades for slightly less than two times book.
Technically, the stock is in a solid uptrend, yet just broke through resistance at the bottom of the uptrend channel. At this point it may test the 50-day sma which is about 4% below the current level.
Yahoo is continuing its mobile push. The company is rolling out mail apps for iPad and Android tablets as well as a branded Weather app for the iPhone. The current iPhone weather app uses Yahoo's data, but is unbranded and features no ads. I see the pullback after earnings as a buying opportunity. YHOO will continue higher.
The Bottom Line
I believe these stocks are buys that have major upside potential. The market is trading at all-time highs in the face of several negative market developments. I posit a correction may be in the works. With these stocks being sold off regardless of their future prospects, you may get a chance to pick them up at a discount over the next few months. Hopefully you have some powder dry and can take advantage.
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 layering in on a weekly basis at a minimum 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 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.