These five stocks have catalyst for upside and are trading at attractive valuations. These facts are subjective and taken alone carry little weight, but it's a good starting point when looking for buying opportunities.
Additionally, the five stocks are trading at or below $10. Stocks trading for $10 or less tend to be more volatile with frequent, large percentage moves in the stock price. This provides the opportunity for greater returns (or losses) relative to the market. These are stocks with market caps of $3 billion or greater. Stocks trading under $10 may provide more bang for your buck.
Finally, the companies have had some very positive developments occur recently. Now, simply selecting stocks trading for less than $10 and near book value is only the first step to finding winners that may provide alpha. We still need to perform further due diligence to determine if these dogs can hunt. Furthermore, we will review the technical state for each company to determine if this is an ideal time to start a position.
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 24% below its 52-week high and has 6% upside potential based on the analysts' mean target price of $1.72 for the company. ALU was trading Tuesday for $1.37, up over 3% for the day.
Fundamentally, ALU has some positives. The company's EPS is expected to grow by 100% next year. ALU has a price to book ratio of 1.25. The company has $2.76 in cash per share. Book value per share is $1.11. 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. The stock is resting at the apex of a descending triangle signaling a break out is imminent.
ALU lowered its headcount by 5.4 thousand in the first quarter due to contract cancellations related company's review of managed services deals. ALU's Managed Services sales fell 4% year over year in the first quarter. Even so, its Networks and Platforms services sales rose 33%.
Telecom industry growth in the U.S. and China should mean improvement in revenue and the bottom line for ALU. I think ALU is about to break out to the upside. The stock has recovered nicely since slightly missing earnings expectations. You can read the transcript here. The stock is a buy at this level.
Advanced Micro Devices, Inc. (AMD)
The company is trading 64% below its 52-week high and is trading on par with the consensus mean target price of $2.85 for the company. AMD was trading Tuesday for $2.82, up over 5% for the day.
AMD has some fundamental positives. EPS is expected to grow by 100% next year. The company has a price to sales ratio of .41. AMD has $1.40 in cash per share. Insider ownership is up 68% over the past 6 months. EPS is up 76% quarter over quarter.
Technically, the stock actually looks good here. The stock is in an uptrend and has recently broken through major resistance levels.
Microsoft (MSFT) sent out an invite Wednesday to a May 21st event pretty much stating the next Xbox will be unveiled. The rumor mill suggests the console will have an 8-core AMD CPU, similar to the chip in Sony's (SNE) PS4. All this recent news of AMD chips bodes well of the stock. I posit the risk/reward equation favors longs at this point. I like the stock here.
Micron Technology Inc. (MU)
The company is trading 8% below its 52-week high and 24% potential upside based on the consensus mean target price of $11.68 for the company. Micron was trading Tuesday for $9.42, up nearly 1% for the day.
Fundamentally, Micron has some positives. Micron's forward P/E is 14.49. Micron is expecting EPS to be up 247% next year according to Finviz.com. Micron has a price to book ratio of 1.34 and a price to sales ratio of 1.21.
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. The gap up after earnings was recently filled.
Though Micron was hit by a general rout in chip stocks, a report from Taiwan's Commercial Times indicates DRAM and NAND flash prices continue to march higher. Contract prices for mainstay 4GB DDR3 PC DRAM modules are said to have risen 8% to 10% in early April. Furthermore, contract prices for 32Gb (4GB) MLC NAND chips reportedly rose 5% to 12%. This is good news for Micron.
Moreover, Micron stated on its earnings call it sees "a favorable supply and demand balance" for NAND due to strong SSD and mobile device demand combined with slowing manufacturing process shifts. I believe the risk/reward still favors longs. The stock is a buy here.
Nokia Corporation (NOK)
The company is trading 31% below its 52-week high and slightly above the consensus mean target price of $3.30 for the company. Nokia was trading Tuesday for $3.38, up almost 2% for the day.
Fundamentally, Nokia has several positives. Nokia has a price to book ratio of 1.26 and a price to sales ratio of .34. The company has $3.62 in cash per share. EPS next year is expected to rise by 600%, according to Finviz.com. EPS is up 70.73% quarter-over-quarter.
Technically, the stock is in a long-term downtrend, yet has bounced back nicely after taking a hit by recording an earnings miss. You can read the transcript here.
Two recent developments are most likely the culprits for the recent run in the stock. First, Bloomberg recently reported Verizon (VZ) is "set to unveil a plan next month" for the anticipated Lumia 928. The phone is said to feature a 4.5-inch display, metal body, 8MP camera, and wireless charging support. This should be a significant catalyst for the stock.
Second, a Dutch court recently granted Nokia an injunction for HTC's flagship One smartphone, declaring the phone's microphone chips use Nokia's IP. This was good news for Nokia going forward. The risk/reward ratio in the stock seems favorable at this point. The stock is a buy here.
Sirius XM Radio Inc. (SIRI)
The company is trading at its 52-week high and has 8% upside potential based on the analysts' mean target price of $3.51. Sirius stock was trading Tuesday for $3.25, up nearly 6% for the day.
Fundamentally, this stock has several positives. SIRI has a PEG ratio of .22. The PEG ratio is indicating SIRI is substantially undervalued. SIRI has a forward P/E of 25, and trades for 29 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. The stock spiked up Tuesday after reporting earnings before the market opened. You can read the transcript here.
First quarter EPS of $0.02 was in-line with expectations, yet revenue of $897 million missed slightly by $12.85 million. Pretty much the same as many other companies have done this quarter.
The reason for the pop in the stock was the company said its total paid subscriber base increased 9% year over year to reach 24.4 million. The resurgence of the U.S. automobile industry helped bring in first-time subscribers as expected. Furthermore, subscriber acquisition costs per gross addition declined during the period. Guidance for 2013 is for total net subscriber adds of 1.4 million and revenue of over $3.7 billion. These are strong numbers by the company.
On top of all this, a share buyback program should underpin the stock. The stock is a buy here. Use the three day rule prior to starting a position though. The stock may cool off a bit after the spike.
The Bottom Line
The risk/reward ratio for these stocks looks favorable for long trades at the time. We are talking about long-term yet speculative investments. I suggest you take your time and layer into new positions. With the markets at all-time highs, there may be more buying opportunities ahead. Additionally, always remember to have a well-balanced diversified portfolio containing several asset classes. Never allocate more than 5% to speculation.
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.