The following five stocks represent competitors in the technology and communication sectors with representations in social media, software, and hardware production. These stocks have experienced consistent moderate to heavy volume trading and are worth looking into during this current volatile economic environment.
RenRen Inc. (NYSE:RENN) – RenRen Inc. is a Chinese communication stock that specializes in internet content. It is currently trading around $5.70, $13.80 below its six month high-- although this should be taken with a grain of salt given the inflated price following its IPO. The 10 day trading volume is 3.6 million, but lately it has seen lower trading volume around 1.5 million. The balance sheet seems strong as indicated by its current ratio and its price to book ratio of 1.59. Additionally, RENN has posted a 64% revenue increase to around 76.5 million.
However, given its relatively stagnant price level after its IPO and the absence of other financial data, I would recommend looking to some of its competitors such as Baidu (NASDAQ:BIDU). BIDU has much stronger financials and a demonstrated growth pattern. For example, RENN’s trailing EPS is $-.85, which is below the industry standard of $0.04 and well below BIDU’s $2.20. However, the price to earnings growth ratio is -246.98, which is lower than the industry standard and BIDU’s PEG of 0.90. This suggests that the company may be severely undervalued, but without a better forecast for the future of the company I am not sure this ratio justifies a purchase. There may be some upside to RENN, but a safer purchase would be in Google (NASDAQ:GOOG) / BIDU, especially in terms of relative safety in this volatile market.
Electronic Arts (ERTS) – Electronic Arts is the well-known videogame manufacturer who produces such popular titles as FIFA and Madden. Currently ERTS is trading at $24.54, about $00.51 below its six month high. The 5-year price to earnings growth ratio is about 1.68, which suggests that it may be overvalued-- especially in comparison to the industry average of .61 and given that its close competitor is trading at 1.20. That means for every increase in growth you are paying more than its competitors. Additionally, the EPS is $-.45, which is below the industry average of $.02. Furthermore, ERTS does not offer a dividend, which some of its competitors do. All in all, unless EA finds a way to become more valuable and competitive, I would not go long on this stock.
Activision (NASDAQ:ATVI)—Activision, a competitor of Electronic Arts, appears to be the best choice within the video game sector. Although the price to earnings ratio of 23.82 is well above the industry average of 11.74, ATVI has been posting consistently strong revenue growth. Additionally, ATVI offers a dividend of .17 (1.3%), which provides greater value. Currently, ATVI has been generating nearly $1 billion more in revenue and $700 million more in net income ,with the same number of employees as Electronic Arts. It is trading at its 6 month high and it could face some short-term issues as a result of broader market volatility, but I would say that in comparison to ERTS, ATVI would be a safer choice for a long-term growth minded investor.
Sony Corporation Common Stock (NYSE:SNE) --- Sony Corporation, another major competitor in the technology sphere, has experienced a large amount of market pressure following the September 15th earthquake in Japan. Currently, SNE is posting -10.0% quarterly revenue growth and is trading near its 52 week low. Its current price is $20.69 and its 52-week low was $18.10. SNE does not offer a dividend and its earnings per share is -3.88. Additionally, SNE has had a stronger reaction to changing market forces, as indicated by its beta of 1.48. However, the income loss of $-3.98 billion could be explained by the balance sheet, which indicates that 71% of the company's assets are in long-term investments. These long-term investments, depending on their success, could provide growth. Furthermore, SNE’s 5-year price to earnings growth ratio is .04, although the industry standard is 0.77 and its competitors' range from -.88 for Panasonic Corporation (PC) to -2.86 for Phillips Electronics. Again, the company may be undervalued, but there may be better value in its competitors. Additionally, the operating margin of 5.24% is below fellow competitor Phillips Electronic (NYSE:PHG) of 6.95% and the industry standard of 6.83%, despite having a similar market cap. Having said that, I would not recommend purchasing the stock on fundamentals, although there may be some upside in the stock if the broader market begins to recover. I would recommend a hold and would wait to see a new earnings report before making any action on this stock.
Apple Inc. (NASDAQ:AAPL) – Apple has been the darling of the American economy over the past several quarters. Although investors will pay a steep price to own a share of the stock, the fundamentals indicate that the stock is undervalued as it trades around $420.00. Currently, Apple has been experiencing high volume trading and the market seems to have reacted well to the release of its iPhone 4S. Apple has posted 39% revenue growth with a net income of nearly $25.92 billion. Its price to earning ratio of 14.49 is slightly above the industry standard of 14.19 and its price to earnings growth ratio is below the industry average (.53 to 1.11). While the P/E ratio may be ahead of the industry standard, the strong revenue growth still makes AAPL a desirable purchase.
In comparison to competitors Google and Hewlett Packard (NYSE:HPQ), the fundamentals continue to hold up. AAPL’s price to earnings growth ratio at 0.53 is below both GOOG and HPQ, 0.83 and 0.67 respectively. Furthermore, AAPL is posting a healthy EPS of 27.68, which is slightly below GOOG (29.34), but greater than HPQ (4.26). Of the three, GOOG and AAPL look to be the strongest stocks. Additionally, AAPL is sitting on nearly $26 billion in cash reserves with no debt and a strong balance sheet. The stock does not offer dividends, but perhaps AAPL will reward investors by using some of these cash reserves through a dispensation of dividends. Looking at its fundamentals AAPL appears to be still undervalued, and as long as the company continues to be the innovators in the tech sphere, I would expect strong growth and value from AAPL. Therefore, I would apply a buy rating to the stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.