I’ve been able to identify 5 analyst ‘buys’ that are currently trading under $20. The companies on our list are centered in technology – there is a radio company, two computer hardware companies and two online software/email companies. Let’s see why analysts are confident about these ‘value’ stocks:
SIRIUS XM Radio, Inc. (SIRI) - The outlook was starting to look bleak for SIRI last week after share prices fell 10% overnight on news that SIRI competitor Spotify partnered with Facebook to begin offering streaming music via social media. However, if you stop there, you only have half the story. There are just as many users that will avoid Spotify Facebook over privacy concerns, as discussed here. However, the bigger news is that in spite of all that, SIRI has still managed to double in value since January; analysts, like Barton Crockett, of Lazard, estimate that SIRI will have more than $1 billion in free cash flow by 2015, no debt and will likely be buying back its stock. Further, compared with its nearest competitor, Pandora Media, Inc. (P), SIRI has almost double the market cap ($5.66 versus $2.36 billion) and a super strong EBITDA ($883.45 million); P’s EBITDA is currently at negative $970,000. Moreover, P’s PEG is at -5.53 while SIRI is holding at 0.83. Considering that SIRI’s price-to- earnings ratio is at 36.83, that’s an annual growth of over 44%. All in all, these factors combine to make SIRI a smart buy, especially for investors looking to take a long position in the company.
Seagate Technology (STX) - STX has everything a great stock could – it has a dividend yield of 6.4%, a PEG ratio less than 1 (0.96), which indicates that it is moderately underpriced, and annual growth close to 10% (9.82%). In other words, STX is growing at a strong pace, is slightly undervalued, and has the potential to boost your investment portfolio. These factors are especially unique considering STX’s closest competitor Western Digital Corp (WDC) has an annual growth that is just 4.38% (only marginally higher than today’s 3.8% inflation) and a PEG at 1.90, which means it is pretty fairly priced. Additionally, STX is essentially purchasing Samsung SDI Co. Ltd. (GM:SSNLF). The two are calling the deal a “strategic alignment” but it still spells opportunity for both companies, and opportunity for you as an investor. The advent of cloud computing is also expected to elevate STX; one of its companies, 1365, Inc., creates EVault Cloud-Connected storage devices that is starting to be pushed by some of the biggest players in the Asia Pacific corridor, like VIVAVO in Hong Kong, Imagine IT in Sydney and Jasco in Melbourne. These facts are making STX a highly recommended bond but you can achieve equal benefit by buying and holding the stock.
Dell, Inc. (DELL) - The price of DELL soared in July, up to over $17.50 a share only to plummet in August to less than $14 per; the stock has been up and down ever since, wavering between $15.50 and $14 a share. Articles, like this one on SeekingAlpha.com, cite the fact that DELL gained 14.7% over its position last year and the high amount of insider trading activity that has been going on over the last six months as evidence it is a good buy, but opinion is divided. For as attractive as DELL may appear, choosing one of its competitors, namely Hewlett-Packard Company (HPQ) may be the smarter bet. As discussed here, it has a lower price-to-earnings ratio than DELL (5.29 for HPQ versus 7.76 for DELL). But that is just part of the story. HPQ was trading over $40 in May; it fell and current estimates show that HPQ will not even recover half the difference over the next 12 months. DELL on the other hand did rise to $17.60 briefly and fell to $12.77 just as briefly but its performance by and large is consistent and growing, making DELL a strong investment.
AOL, Inc. (AOL) - AOL has lost more than $800 million since spinning off from Time Warner (TWX), prompting discussion, such as this article in Businessweek, as to whether recovery is a possibility for the once wildly popular company. However, the analysis on AOL remains strong. It is currently trading around just $12 a share after reaching a 52-week high of $27.65 a share. Its PEG is high, coming in around 14.30, as is its price-to-earnings ratio, at 5.56, meaning the company is expected to grow at just 2.57%, which is over a full percentage point less than inflation. So, why the optimism? Two reasons – AOL has the potential to swell over 38% based on its current run and there is talk of several potential M&A deals featuring AOL. Buying AOL now, is primarily for a short position. It is not likely that AOL will bounce back to beat its rival Google Inc. (GOOG) but there is still money to be made on pricing inefficiencies in the market and a possible M&A deal.
Yahoo! Inc. (YHOO) - YHOO is a competitor to both AOL and GOOG. It has remained something of a middle man, boasting a market cap roughly 12 times that of AOL’s ($16.63 billion versus $1.28 billion) and a modest one-tenth that of GOOG ($166.30 billion). It is also a good investment. YHOO currently has a PEG around 1.41 and a price-to-earnings ratio of just under 15 (14.93), which places its estimated growth at 10.6% and points to a likely undervaluation. Further, it has a strong EBITDA compared with its competitors. YHOO had reached a 52-week high of $18.84 per share before falling to its current level, just over $13, but if analysts are right, it should recover almost all of that within the next 12 months. The primary driving force of the optimism around YHOO seems to be the rumors that Alibaba, the Chinese e-commerce, is looking to acquire YHOO and YHOO’s “leaked” memo announcing that it was putting itself up for sale. Buying now will ensure that you get in while the stock is still low, before the equity swells after talks of purchase become more formal.