By Larry Gellar
Here we have five large-cap ($10B to $200B) Nasdaq (QQQ) stocks that saw heavy trading on Friday. The Nasdaq went up almost 2.5% on Friday, and investors are anxious to see what happens in the week beginning August 29th. Let’s see what’s driving these 5 stocks:
Comcast Corporation (CMCSA) – Comcast was up over 1% on Friday, but the company could see increased competition as Dish Network (DISH) announced that it would start offering wireless broadband. This could be the next big thing since the market for wireless Internet is rapidly expanding. Comcast has also been in the news because of the possibility that it will increase its investment in Clearwire (CLWR) to take over the troubled company. Clearwire supplies Sprint (S) with 4G capabilities, which means Clearwire’s survival is crucial for preventing AT&T (T) and Verizon (VZ) from becoming too big for Comcast to compete with. As far as value metrics go, CMCSA is trading at a higher price to earnings ratio and higher price to sales ratio than both DIRECTV (DTV) and Dish Network (DISH). This makes sense though because Comcast also boasts better margins – gross margin is 55.36% and operating margin is 20.47%. Comcast also has a very high quarterly revenue growth (year over year), and this is probably due to recent activity on the M&A front. In fact, cash flows for 2011 have negative so far, and much of this can be attributed to investing activities other than capital expenditures. Also, unlike DTV and DISH, CMCSA offers dividends, although these are not nearly as high as T and VZ.
QUALCOMM Incorporated (QCOM) – Qualcomm was up over 4% on Friday, and the company announced some promotions on Sunday night. This should help the company continue its strong performance in Asia. In fact, as discussed here, Qualcomm has a very strong presence in iPhones, Android phones, and Windows phones. QCOM’s balance sheet is also immaculate, with more than $22 billion in cash and no debt. Gross margin of 67.5% and 32.27% also vastly exceed other players in the communication equipment industry such as Broadcom (BRCM), Nokia (NOK), and Texas Instruments (TXN). This comes at a price though – QCOM’s price to earnings and price to sales ratios are both higher than all 3 of those competitors just named. Price/earnings to growth of 0.98 is also a bit high. With 34.2% quarterly revenue growth though, the time to jump on this stock may be now. Qualcomm’s numerous patents have also been discussed at Seeking Alpha lately, and many expect the royalty money to continue to stream in. QCOM has also been in the news for licenses it is trying to sell to AT&T that would allow the company to operate in part of the 700 Mhz range. This deal has come under scrutiny from regulators though since AT&T is also trying to purchase T-Mobile USA.
Research in Motion Limited (RIMM) – The BlackBerry maker was up almost 3.5% on Friday, and the company said it plans to offer a music sharing service that will hopefully rival the Apple (AAPL) iTunes Store. We’re not so sure though. The details of Research in Motion’s new offering can be found here, and the features are counterbalanced by a number of gimmicks. Users will only be able to store 50 songs and will have to get other songs they want from other people who use BlackBerry Messenger. (Note that only half of a user’s stored songs can be changed each month). We think buyers will be scarce, and each purchase of $5/month doesn’t bring in that much revenue anyway. Sure, at least a few people will be interested in this, but don’t look for this to turn around the decline of the BlackBerry anytime soon. Regardless, RIMM stock is very cheap on a price to earnings basis right now. That ratio is 4.63, a mere fraction of what companies like Apple (AAPL), Microsoft (MSFT), and Nokia (NOK) are trading at. Factor in growth though, and RIMM starts to look a little more expensive. The price/earnings to growth ratio of 0.89 is somewhat higher than other players in this industry.
Applied Materials, Inc. (AMAT) – AMAT has been on a steady decline since March, and at least one investor is bearish on the stock, noting that it’ll take a higher dividend yield to make him a buyer. Applied Materials has also been hit by poorer demand for PCs, as discussed here. In fact, the company lowered its Q4 outlook, citing a declining market for solar cells, foundries running with too much capacity, and lower prices for AMAT’s products. Regardless, there are still some bulls out there. That linked article notes that the company will soon recover from problems stemming from the catastrophe in Japan. Fundamentals, valuation, and the balance sheet all look good. Shareholders can only hope that the company can keep up its history of new and interesting products. Note that AMAT has a higher price to earnings ratio than competitors like KLA-Tencor (KLAC) and Lam Research (LRCX). At the same time, gross margin (43.20%) and operating margin (24.31%) are lower than both of these competitors. As for cash flows, AMAT was up $281.28 million for the 52 weeks ending October 31st and up $700 million for the 26 weeks ending May 1st. The company’s ability to limit expenses should certainly be recognized, and the company has also used some cash to buy back stock.
eBay Inc. (EBAY) – Up nearly 4% on Friday, eBay is in the midst of a payment system revolution with its Paypal enterprise. As discussed here, the next step is to allow consumers to pay for products simply using their phone, and eBay has made at least some headway in this department. Mobile traffic is also important for eBay, and steps the company is taking to do well in that area are discussed here. ePN Mobile is one such program, and eBay seems to be having some success with it. Regardless, not everyone is excited about the stock, as growth prospects outside of PayPal aren’t tremendous. Additionally, the price to earnings ratio of 22.13 and price to sales ratio of 3.63 may simply be too much for some investors to swallow. Margins are pretty good though – gross margin is 71.69% and operating margin is 22.14%. Even price/earnings to growth is decent at 1.29. Cash flows have been mixed with $1.57759 billion coming in during 2010, while $311.59 million has flowed out since then. Recent stock repurchases are an important contributor to this though. eBay is also acquiring Magento, a move we applaud. This should provide an even stronger foundation for the company’s e-commerce operations. Note that dividend investors may want to look elsewhere, as neither eBay nor competitors like Google (GOOG), Yahoo! (YHOO), and Amazon (AMZN) offer such payments.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.