The ugly budget fight and the fallout from the lack of a meaningful debt reduction plan once again took a heavy toll on the markets last week. The Technology SPDR (XLK) was down 5.7% last week, on the back of a 3.4% drop the prior week. Of the approximately 200 stocks in the technology services group, ten stocks trading above $1 at closing on Friday, August 5, went down more than 15% during the week and another three went up more than 15% during the week (see Table). The fall in the technology index mirrored the overall weakness in the broader markets as the indices plunged 7%-8% last week on the back of a 4% dive the prior week.
As an investor, it is imperative to keep a cool head, especially in such turbulent times, and keep scouting for new opportunities while keeping an eye on both the price movements and news flow. Our daily and weekly coverage analyzing the top movers for top buy and sell ideas is aimed at enabling you in that effort. You can access the rest of our daily, weekly and quarterly mover series from our author page. This article covers our analysis of the top movers in the technology services group last week. Of the thirteen stocks that moved more than 15% up or down last week, we analyzed them to determine if they would continue in the same direction, or if they would reverse their moves going forward. The following are the best buy and sell ideas based on that analysis.
Vonage Holdings Corp. (VG): VG provides broadband VoIP services to over 2.4 million residential and small business customers in the U.S., Canada and U.K. Its shares plunged 22.9% last week, and they are up 37.9% YTD. The shares dropped last week after the company’s announcement of its June quarter results on Wednesday morning before the market-open. VG reported earnings at 10cents, 1cent ahead of estimates, and revenue a bit shy of estimates at $218 million versus $220.6 million. However, total subscriber lines at the end of the June quarter fell both sequentially versus the March 2011 quarter as well as year-over-year. At Friday’s closing price of $3.09, VG still trades at 7-8 forward P/E, while earnings are projected to flatten out going forward in the 8cents-10cents per quarter range. We believe VG is fairly priced here, and it should be range-bound between $2.5 and $4 in the near-term.
Buy Web.com Group Inc. (WWWW): WWWW is an end-to-end one-stop shop for small businesses to help them establish their online presence with a suite on online web publishing and marketing tools. Its full range of online solutions and services include domain registration (via Register.com), website design and publishing, lead generation, ecommerce, power marketing bundles, search engine optimization, and even a call center service. WWWW was among the few stocks that surged last week, rising 37.4% during the week and it is up 41.3% YTD. We issued a buy on WWWW after market-close on Thursday based on its stellar earnings report, attractive valuation relative to its growth, and its announcement of the acquisition of privately held Network Solutions, which should lead to even more cost synergies and cross-marketing opportunities providing the fuel for revenue and earnings growth going forward. We stand by that recommendation, and would be buyers on any dips in case the weak markets give us another opportunity to pick up this growth name at lower prices.
VirnetX Holding Corp. (VHC): VHC is a developer of software and technology solutions for secure real-time communications over the Internet, such as instant messaging and VoIP. Its shares skidded down 27.1% last week on top of a 14.7% drop the prior week. There has been no company-specific news triggering the steep fall in the last two weeks, but shares were trading at a premium and were up almost 700% in the last twelve months to a high in the $40s just prior to the fall. Currently, the shares are approaching their 200-day moving average in the $20 range, and in the absence of no fundamental drivers to the sell-off, it is very likely that shares will hold that level.
Buy MetroPCS Communications Inc. (PCS): PCS is a wireless telecommunications carrier, offering wireless broadband mobile services in the United States. A key distinguishing feature of the company versus other providers of cell phone services is that it does not require an annual contract, unlike similar service from AT&T (T), Sprint Nextel Corp. (S), and Verizon Communications (VZ). We issued a buy on Wednesday on PCS, and continue to believe that the plunge in the stock price in the early part of the week was an over-reaction to the June quarter earnings miss.
Buy Ancestry.com Inc. (ACOM): ACOM provides family history information via ancestry.com allowing users to research their family histories, build their family trees, collaborate with other subscribers, upload their own records, and publish and share their stories with their families. The foundation of the Company's service is a collection of billions of historical records. It has established relationships with national, state and local government archives, historical societies, religious institutions and private collectors of historical content worldwide. Its shares fell 15.2% during the week, on top of a 17.5% drop the prior week. In our prior coverage on ACOM on Tuesday of last week, we indicated our belief in ACOM’s long-term growth story and that we would be buyers on a further dip into the $30-$32 range. We stand by that, and believe that shares are priced to buy here.
Buy Motricity Inc. (MOTR): MOTR is a provider of mobile data solutions enabling wireless carriers to deliver mobile content and applications to their subscribers and consumers. The Company provides a suite of hosted, managed service offerings, which enable wireless carriers and enterprises to deliver customized, carrier-branded mobile data services. Its mCore platform delivers a complete solution, including portal, marketplace, connect, search, managed web, mobile campaign management, messaging, billing and settlement. Its shares were down 17.3% last week on the back of an 18% drop the prior week. We reiterate our belief stated in our prior coverage of MOTR that at a forward P/E of 5-6 and a projected earnings growth rate of 48%, its shares are priced to buy here.
Buy Clearwire Corp. (CLWR): CLWR provides wireless broadband networks for delivery of residential and mobile internet access and voice services. CLWR customers connect to the Internet using licensed spectrum, thus eliminating the confines of traditional cable or phone lines. The company offers its service in fifty U.S. markets, we well as in Europe. The stock fell 17.1% last week, on top of a 28.4% drop the prior week, and it currently trades near all-time lows, down 65% YTD and almost 95% below its all-time high of $35 in 2007. We reiterate our buy from our prior coverage of CLWR last week, based on our belief that by embracing LTE technology for its 4G implementation, CLWR has now taken up some insurance against its own irrelevancy as its future is no longer tied completely to WiMax, a technology that is in danger of becoming obsolete. Furthermore, CLWR has spectrum assets that could fetch as much as $20 billion in an auction if the Obama administration frees up more spectrum for commercial use.
Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.