5 Tech Stocks To Buy With Solid Growth Trading Near Lows

by: David Alton Clark

The Gist

Facebook Inc. (NASDAQ:FB) and Yelp Inc. (NYSE:YELP) led the tech sector higher Thursday after their earnings results were received favorably. You can read the Facebook transcript here and the Yelp transcript here. The Nasdaq ended the day up 41 points, or 1.3%.

Facebook's results were the big story. Facebook shares popped 5.6%, closing at $28.97 for the day. The company reported strong revenue gains. Mobile advertising revenue accounted for 30% of the company's total advertising sales of $1.25 billion. I posit the real takeaway was the fact revenue in total was up 43% and up sequentially as well. I was long Facebook prior to earnings. With the flurry of good news turning the tech sector bright green Thursday, I decided to write about the tech stocks I am currently buying.

In this article we will discuss five tech stocks have recently bought or I'm planning on buying. As stated previously, I already have a full position in Facebook . Additionally, I have recently started partial positions in Nokia (NYSE:NOK) and Advanced Micro Devices, Inc. (NYSE:AMD). Groupon Inc. (NASDAQ:GRPN) and MEMC Electronic Materials Inc. (WFR) are on my watch list to buy next.

I believe all these stocks have organic growth forthcoming based on secular catalysts in their respective businesses. These are long term buys. In the following section I will discuss why I think now is the time to buy and hold these five tech stocks for the long haul.

The Goods

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 Thursday's performance for the stocks. The following charts are provided by Finviz.com.

Advanced Micro Devices, Inc.

The company is trading 56% below its 52-week high and is trading 16% above the consensus mean target price of $2.85 for the company. AMD was trading Thursday for $3.40, up over 5% for the day.

Fundamental Reasons To Buy

There are several fundamental reasons why I started a position in AMD. Firstly, EPS is expected to grow by 100% next year and is up 76% quarter over quarter. EPS growth derived from organic sources is one of the most critical factors I consider prior to opening a position in a stock. Additionally, Insider ownership is up 68% over the past 6 months. Insiders sell for many reasons, but only buy when they feel the stock is going up. A high level of recent insider buying is often a good indicator the stock may be undervalued.

Technical Review

Technically, the stock just broke out to the upside by 20%. I was fortunate to catch some of the upside as I noticed the stock appeared to be setting up for a run two days ago. The stock is in an uptrend and is currently testing the long-term resistance.

My Take

I wrote an article a couple of days back noting AMD looked fundamentally and technically attractive to me. I posited the use of AMD's chip in Sony's (NYSE:SNE) PlayStation 4 and rumored use in Microsoft's (NASDAQ:MSFT) next Xbox game console could be a strong catalyst for growth.

That day the stock began to shoot up for no apparent reason. AMD ended up 14% that day. Since, I have ferreted out the potential reasons for the recent pop in the stock.

First, the buyout rumors are back, yet this time things may be different. According to Barron's, the rumor is Intel (NASDAQ:INTC) is going to buy AMD. The rumor mill reports the buyout might suddenly be possible because the field of computing is now being defined more broadly than just the PC, which means "there aren't as many antitrust issues," perhaps. Although the rumor is not a new one, "It's in circulation again today."

All this recent news AMD is very positive. The change in stance regarding the antitrust issues makes sense to me. I have a quarter positive in the stock.

Facebook Inc.

Facebook is trading 36% below its 52-week high and has 15% potential upside based on a consensus mean target price of $33.32 for the company. Facebook was trading Thursday for $28.98, up over 5% for the day.

Fundamental Reasons To Buy

The key for Facebook is mobile advertising revenue growth and mobile only subscriber growth. Facebook doubled the number of mobile only subscribers currently at 189 million. Furthermore, mobile advertising revenue is up 7% from 23% last quarter to 30% now. Facebook's EPS is expected to rise by 30% over the next five years and 36% next year.

Technical Review

Technically, Facebook looks strong. The stock has achieved the golden cross. As noted in an earlier missive, the stock was resting at the apex of a descending triangle pattern. This means the stock is about the break out. The stock subsequently broke out to the upside based on positive interpretations regarding recent earnings.

My Take

The main reason I bought FaceBook was due to mark Zuckerberg's approach to running the company. He seems to be channeling Jeff Bezos, the current CEO of Amazon (NASDAQ:AMZN). I like his approach. He is focused on the future, not the short term bumps in the road. Moreover, they are delivering on growth objectives. As time goes on costs should diminish as revenues crank up leading to higher margins and more profits. This is the primary reason why I am long the stock.

Groupon, Inc.

The company is trading 61% below its 52-week high and 5% above the consensus mean target price of $5.55 for the company. Groupon was trading Thursday at $5.88, down almost 2% for the day.

Fundamental Reasons To Buy

EPS is up 90% this year and expected to rise by 43% next year. EPS is expected to rise by 24% over the next five years as well. Sales are up 30% quarter over quarter.

Technical Review

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. The stock recently pulled back to the 50-day sma.

My Take

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, but am waiting until after earnings are announced on May 8th to start a position. Last quarter was highly volatile and I would rather take a wait and see approach this time.

Nokia Corporation

The company is trading 34% below its 52-week high and slightly above the consensus mean target price of $3.30 for the company. Nokia was trading Thursday for $3.26, down over 2% for the day.

Fundamental Reasons To Buy

Nokia is trading for slightly over book value. 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. The company has a lot of irons in the fire so to speak and many new product launches on the horizon.

Technical Review

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.

My Take

I bought the stock based on two recent developments. The developments were Verizon (NYSE:VZ) is set to unveil a plan next month for the anticipated Lumia 928 and a Dutch court recently granted Nokia an injunction for HTC's flagship One smartphone. This was good news for Nokia going forward.

Several other events are lined up as well. Nokia has a May 14th event in London to show off new Lumia hardware. The rumor mill has indicated Nokia is working on an aluminum Lumia 920 successor, a Windows Phone with a 41MP PureView image sensor, and a Galaxy Note-sized phablet. On top of all this, Nokia has begun selling its $20 105 feature phone in China. The risk/reward ratio in the stock seems favorable at this point. This is why I started a position in the stock.

MEMC Electronic Materials Inc.

The company is trading 4% below its 52-week high and 13% upside potential based on the consensus mean target price of $6.18 for the company. WFR was trading Thursday for $5.39, up over 2% for the day.

Fundamental Reasons To Buy

The company has a forward P/E of 10. WFR's EPS is up 99% quarter over quarter and expected to rise by 135% next year. The company is trading for approximately two times book value and 44% of sales.

Technical Review

Technically, the stock has been on a roll and is in a solid uptrend. All major moving averages are now trending upward and the golden cross has been achieved. The stock just broke through long-term resistance.

My Take

MEMC's SunEdison unit has reached a solar module outsourcing deal with Foxconn's solar manufacturing arm. Module prices and margins have crashed amidst a massive global oversupply. MEMC will effectively lower its manufacturing overhead and capital expenditure needs by this move.

I'm in the bull camp and see this as an excellent buying opportunity. I plan on starting a position prior to the upcoming earnings report on May 6th.

The Bottom Line

The risk/reward ratio for these stocks looks favorable for long trades at the time. We are talking about long-term investments here so take your time building a position. I suggest you layer into new positions over the summer months to reduce risk. 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.

Disclosure: I am long NOK, FB, AMD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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.