We all know that the market is correcting itself after a parabolic start to the year. Sir Isaac Newton, you won again. As any long only money manager knows, a pullback simply creates buying opportunities. That's why it's imperative that you keep a keen eye on the following stocks.
JP Morgan (JPM)- Jamie Dimon's golden crown on Wall Street may have lost some of its sheen in the public eye as of late due to the constant barrage of Capitol Hill, but he is still the best CEO on the street. It seems as though Capitol Hill is looking to break up the big banks, which would take years for them to accomplish, and JP Morgan's parts may be worth more than the whole. Consensus opinion has JPM worth roughly 25-30% more broken up than current valuations. That would be a lovely return on the best blue-chip financial sector play out there.
As we stated, a break up of JPM will take years for Capitol Hill to accomplish. With all the vacations, bathroom breaks, and finger pointing Congress is busy with, we feel safe in making that assumption. With that being said, what makes JPM attractive in the short term? Valuation! JP Morgan currently trades with a trailing P/E of 8.58, a Forward P/E of 8.40, a P/S of 2.05, and a PEG of 1.44. Compare that to Bank of America (BAC), which many money managers seem to be enamored with. Bank of America trades with a trailing P/E of 31.24, a Forward P/E of 10.50, a P/S of 1.99, and a PEG of 0.87. The trailing and Forward P/E ratios show JPM valuations are far cheaper than BAC now, and moving forward. The P/S difference is negligible, and the PEG is an illustration of Bank of America still crawling out of the financial collapse hole. Meanwhile, JP Morgan is standing on solid fundamentals and only coping with political ire for the sake of headlines. With strong support at the $50 level, JPM seems positioned to strike.
52-week price target- $67.20.
The Play- $60 strike calls with June '14 expiration.
Facebook (FB)- The growth story trumps fundamentals on this entertainment, not tech, company. Facebook has found the mixture between combining the ever evolving tech world with the entertainment style revenue generation. Mobile ad growth has grown significantly in just over a year that Facebook has been implementing it, with 41% of its ad revenue now being generated through mobile ads. By the end of Q4 2013, do not be surprised if mobile ad growth tops 55% as video ads roll out this late fall on both Facebook and Instagram.
Facebook's biggest competitor, Google (GOOG), just missed expectations on the last quarter as Google dealt with weakening ad prices. That pressure on Google is quite telling. Advertisers know what to expect from Facebook advertising, up to a 53% ROI. Google's banner ads and "pay for placement" advertising model has become obsolete. While no one is questioning Google's ability to print cash quarter after quarter (see: Google NFL deal), Facebook represents a great opportunity for money managers who can tolerate "The Hoody." Facebook revenue has grown by 53.12% YoY, while Google has grown revenue by only 19.46% YoY. That doesn't take into account the video advertising revenue that is yet to come, which stands to put $2 million in Facebook's pocket for just 15 seconds of advertising. A portfolio without Facebook should be considered 'conservative' to say the least. Short-term support stands at the IPO price of $38, and a pullback to those levels warrants a buying opportunity.
52-week price target- $58.00.
The Play- $40 strike calls with March '14 expiration.
NXP Semiconductor (NXPI)- What? If you don't know NXPI by now, you've cost yourself, and your clients, a great deal of money. NXP is a direct competitor with Qualcomm (QCOM) and Broadcom (BRCM) in the near field communication and mobile spaces. While Qualcomm and Broadcom are more mature companies, with a significant lead in providing chips in the smartphone market, NXP has an exceptionally strong patent portfolio in the near field communication market. What is near field communication? When you think near field communication, think Google Wallet. Near field communication has the ability to make our everyday wallets completely obsolete. By implementing this technology in smartphones, users could pay for their tab at the restaurant, present their state I.D.s, and check out a book from their local library simply by using their phone. Skeptical on the technology? Look at the names of companies preparing to implement nfc technology: Wal-Mart (WMT), Target (T), 7-Eleven, Best Buy (BBY), Mastercard (MA), Sears (SHLD), CVS (CVS), Lowe's (LOW), Sunoco (SXL), Shell, Publix, and Hy- Vee are all involved in nfc technology to name a few.
Along with an impressive client list that includes Google (GOOG), Apple (AAPL), Samsung (005930.KS), and Microsoft (MSFT), NXP Semiconductor has strong fundamentals. NXPI currently trades with a trailing P/E of 93.24, a Forward P/E of 9.08, a P/S of 1.98, and a PEG of 0.41. The trailing P/E shows the premium placed on growth, but the forward looking metrics (Forward P/E and PEG ratio) show that NXPI is cheaper than the likes of Apple, Google, and even Microsoft. It's impressive to see that a hyper-growth company like NXPI is priced at a discount moving forward to such mature technology companies. With support at the $32.50 price range NXPI could enjoy a nice bounce in the near future, while enjoying price appreciation as nfc technology becomes more main stream in the coming years.
52-week price target- $45.05
The Play- If you can find April '14 expiration $30 strike calls, otherwise use $30 strike January '14 expiration calls.
Honorable Mention: Tesla (TSLA), a Dec. expiration spread option to capture momentum and profit after the parabolic correction. Pulte (PHM), look to build a position if it goes below $14. Mannkind (MNKD), revolutionary new drug that should submit for approval in Q4 looks attractive at $4.70-$5.00. Lions Gate (LGF); it's all about the Hunger Games mega saga and looks attractive on a pullback.
Additional disclosure: I may initiate a long position in JPM and NXPI within the next 72 hours. Currently own an options spread on TSLA. Investing involves a significant risk of loss, as such never invest more than you can afford to lose. Always consult with your own registered financial professional before adding a new position to your portfolio.