By Frank Curtin
With all the negativity and uncertainty in sectors like banking and finance, retail and the automotive industry, I thought I'd try to cheer everybody up by finding some companies that not only look good in the present sense, but also have an optimistic outlook for the coming year and are developing strategies that will carry them into the future. This fervent sector is none other than… technology (tada!) and the five companies pioneering this ray of sunshine are as follows:
QUALCOMM (QCOM): In a recent article Qualcomm predicted that 2012 would be a banner year for mobile devices and the company's profits. The company's CDMA technology (Code Division Multiple Access) is included in the newest Apple (AAPL) iPhone and the company anticipates demand for tablets and smartphones to remain strong throughout the year. Qualcomm also stands to benefit from the expansion of network technology in emerging markets. Analysts agreed with Qualcomm's outlook saying "there was little not to like". Of the 33 analysts that cover the stock, 25 have a strong buy rating, 5 recommend buying the stock and 3 recommend holding it. Qualcomm estimated revenue for the year to be 20% to 27% higher than last year, coming in between $18 billion and $19 billion or 7% to 13% growth in earnings per share. The company's two closest competitors - Broadcom (BRCM) and Texas Instruments Incorporated (TXN), both of which have a large exposure to the personal computer market, warned that their revenues could fall this quarter. For further comparison Qualcomm has a PEG ratio of 1.20, Broadcom has a PEG ratio of 1.55 and Texas Instruments Incorporated has a PEG ratio of 1.46, indicating Qualcomm is the cheapest of the trio in terms of price to earnings growth.
Juniper Networks (JNPR): Slow and Steady Wins The Race - Investors seem to be accepting this mantra as we slowly come out of this recession and are apparently not punishing stocks quite as brutally (if at all) for adopting such a philosophy - see this article about Cisco Systems (CSCO) and their restructuring plans. The boom and bust cycle will inevitably return as fear and greed - those nasty human conditions - seep back into the marketplace. But for now, let's sit back and enjoy the peace and serenity… Okay, enough of that happy crappy stuff now - let's talk about the competition! Juniper Networks, Cisco's nearest competitor, also lowered its fourth quarter guidance after reporting profits that were in line with estimates (see this article). Tranquilizing analyst expectations in the midst of uncertain customer spending and the rising risk of lower cost Chinese products, the stock still rose about 1% in afterhours trading on the news. The next participant in this heated competition is Alcatel-Lucent (ALU) and I thought we would see how they stack up going into next year and beyond. Alcatel-Lucent has forecast earnings growth of 39.18% in 2012, 12.21% in 2013 and 0.00% in 2014. In comparison, Cisco Systems has forecast earnings growth of 6.19% in 2012, 10.99% in 2013 and 0.00% in 2014. Juniper Networks, on the other hand, has forecast earnings growth of 22.92% in 2012, 28.67% in 2013 and 38.88% in 2014 making it the winner in our slow and steady growth race.
Oracle (ORCL): If you can't beat them, buy them out. This seems to be Oracle’s philosophy. Oracle software is primarily based on Unix and Linux with its functionality based on Java programming language. This put the company in both competition and collaboration with Sun Microsystems and open source. So what did Oracle do? Oracle bought Sun Microsystems, thereby eliminating the competition and picking up some nice patents in the process (see this article). Not to mention gaining control of open source and Java (Java is a Sun Microsystems creation). Along comes cloud computing in direct competition to companies like Oracle which produces and supports software for its customers as an in-house infrastructure. Cloud computing is an infrastructure based on centralized shared servers that are off-site rather than in house. This allows businesses to save costs on software services - a large part of Oracle’s business. Oracle cannot feasibly or organically develop a cloud system framework and so it has started feeling the pressure from this new form of competition. So what do they do? Buy RightNow (RNOW), of course (see this article), thereby doing away with some competition and gaining a foothold in the cloud computing market.
Teradyne (TER): Teradyne is a manufacturer and supplier of automatic test equipment. Two of the company's top competitors are Thermo Fisher Scientific (TMO) and KLA-Tencor Corporation (KLAC). I thought we would take a look at how these companies stand going into 2012 and beyond. Teradyne currently has a PEG ratio of 0.92 with forecast earnings growth of -2.40% in 2012 and 10.88% in 2013. Thermo Fisher Scientific similarly has a PEG ratio of .95 but has forecast earnings growth of 14.68% in 2012 and 10.74% in 2013. KLA-Tencor Corporation currently has a PEG ratio of a relatively expensive 1.40 with forecast earnings growth of a disappointing -28.56% in 2012 and an optimistic 29.49% in 2013, indicating that Teradyne is the cheaper of the three in terms of earnings growth. Although the company's 2012 outlook is nothing to get too excited about, it does have one other thing going for it. Teradyne has just completed the biggest deal in the company's history (see this article) - namely, the acquisition of Litepoint, a buy that will give the company a foothold in the ever growing market for smartphones and tablets. In Teradyne's case, this means filling the demand for devices that test wireless equipment and adding about 10% to the company's earnings in 2012 alone.
Sanmina-SCI (SANM): Sanmina-SCI recently reported earnings that disappointed Wall Street (not a difficult thing to do). But on closer inspection the report was not as bad as it was made out to be (see this article). Reported earnings and revenue did come under expectations but they were due to declared expenses and provisions set aside for income taxes. Adjusted earnings per share and quarterly revenues actually topped expectations. Adjusted net income was $38.67 million or $0.47 per share. In the same quarter last year, net income was $37.81 million or $0.46 per share and the street was expecting earnings of $0.41 per share. Net sales were $1.70 billion, up from the $1.69 billion reported last year while the street was expecting $1.66 billion. More importantly, gross margins were up 10 basis points at 7.9% compared to last year's 7.8%. Well then let's take an even closer look by comparing Sanmina-SCI to the company's two closest competitors - Jabil Circuit Inc. (JBL) and Flextronics International Ltd. (FLEX). Sanmina-SCI currently has a PEG ratio of 0.44 with forecasted earnings growth of 9.23% in 2012 and a quite respectable 19.46% in 2013. Jabil Circuit Inc. presently has a PEG ratio of .76 with forecast earnings growth of 13.21% in 2012 and 13.94% in 2013. Flextronics International Ltd. at this time has a PEG ratio of .70 with forecast earnings growth of 0.00% in 2012 and an impressive 26.11% in 2013. This indicates Sanmina-SCI is significantly cheaper than its two rivals at present in relation to its growth going forward.