Technology stocks were included in posts (“tweet”) from CNBC "Mad Money"’s Jim Cramer (denoted below as 'JC'). Despite the negativity of the markets resulting in a net sale of mutual funds since April 2011, Cramer sounds bullish on technology. The net outflow of funds is so great that it now exceeds the outflow experienced after Lehman Brothers declared bankruptcy. With heightened fear, chances are better that the market is at or is reaching a bottom. Seasonality also favors the purchase of securities between October/November to May.
1) EMC Corporation (EMC)
JC: People think $EMC is going to miss because of government and financial clients. I think it will be fine, own it for the trust
Comments: After peaking at $28 four times this year, EMC bottomed at just over $20 in August and closed recently at $21.81. For 2011, insider sales totaled $81.33M (finviz.com). EMC trades at a P/E of 22.96 and a forward P/E of 12.68. The market clearly has high earnings expectations for the company (EPS of $1.72 vs. $0.95 ttm). By researching companies dependent on government orders, there is more uncertainty than upside. Computer Sciences Corporation (NYSE:CSC) and NetApp Inc. (NASDAQ:NTAP) both reported weaknesses with government contracts. The crisis of the U.S. debt ceiling in August may have been temporary, but the governments are cautious.
2) Netflix Inc. (NASDAQ:NFLX)
JC: $NFLX is worth only $7 billion now ... That does seem too low. That’s a lot of subs for very little money.
Comments: Netflix destroyed its high market valuation by raising prices in a way that its customers interpreted as arrogance and greed. Netflix did not expect to lose over 1 million customers, and over-estimated the loyalty of its customers. The moat of bundling the “old” DVD business and streaming videos was broken. Shares dropped 57% from its peak of around $300, to $130.03.
Netflix further eroded its once-invincible moat by splitting and renaming its DVD unit and naming the unit “Qwikster.” There are two problems with this. First, users now have to sign-on to two different sites and receive two different bills. The inconvenience will assure further customer losses. Second, rebranding efforts will be high, because the company will not be able to leverage its established brand.
Netflix may attempt to rally back to $150, but the customer loss and challenges for its streaming media business (limited selection and throttling from carriers like Verizon (NYSE:VZ) will continue to hurt shares.
3) Avnet (NYSE:AVT)
JC: In Tech Bottom, Buy This Stock $AVT
Avnet distributes electronic components, enterprise computer and storage products, and embedded subsystems. Citing valuation (P/E of 6.26) and growth rate, Cramer calls this stock a buy. Cramer noted the negative book-to-bill ratio.
Comments: Director James Lawrence made an insider purchase of shares valued at $1 million. Shares also bottomed twice at the $25-level. The company is set for strong sales in the holiday sales, if the seasonality story for technology plays out.
4) Juniper Networks Inc. (NYSE:JNPR)
JC: Time to Buy Juniper? $JNPR
“When a stock gets obliterated and the estimates are slashed to the point where they can’t conceivably go much lower,” Cramer said, “then you start to get a bottom on your hands when the facts on the ground start changing for the better.”
Comments: Juniper trades at a forward P/E of 12.83 (10.00, according to Cramer). Juniper appears to have bottomed at $20, but shares are cheap for a reason. Using discounted cash flow valuation modeling, shares are worth $22.
5) Adobe Systems Incorporated (NASDAQ:ADBE)
JC: What ... $AAPL $ADBE $AMT $AZO $BBBY $CAG $CCL $CELG $CRM $ERTS $FDX $GIS $KBH $LEN $NKE $ORCL $RHT $VIA $YUM
Cramer listed a number of technology stocks. Adobe merits the most attention.
Comments: Closing recently at $24.64, Adobe reported a 14% increase in subscription revenues, and 3.6M shares repurchased. The company forecast FQ4 revenue of $1.075B-$1.125B and an EPS of $0.57 to $0.64. This is above $1.07B and $0.59 consensus. Longer out, even though Microsoft (NASDAQ:MSFT) Windows 8 will be free of plug-ins, threatening the future of Adobe’s Flash plug-in, Adobe’s Creative Suite franchise offers investors exposure to desktop and mobile development software.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ADBE over the next 72 hours.