By Frank Curtin
The technology circus seems to be in full swing with all kinds of things happening on the Street. I took a look at five technology stocks that I think can make investors money in 2012. As always, please use my research as a starting point for your own due diligence.
Vishay Intertechnology (VSH): Since June of this year Vishay Intertechnology stock has lost close to 50% of its value falling from near the $20 per share water mark to below $10 per share, although the stock has had a pretty good bounce off the bottom to recently close above $11 per share. The electronics components industry is notorious for struggling during economic downturns and typically booms during upturns due to short supplies as manufacturers try to keep up with increasing demand. This volatility is intensified for a company like Vishay Intertechnology that relies on acquisitions (and the associated costs) for growth in current markets and expansion into emerging markets. This volatility does produce great buying opportunities, though. And if 2012 is the year of the inveterate up cycle, Vishay Intertechnology’s stock price looks very attractive. With that in mind we will look at how Vishay Intertechnology stacks up against two of its competitors going forward - Fairchild Semiconductor International (FCS) and ON Semiconductor (ONNN). Vishay Intertechnology has an estimated price-to-earnings ratio of 9.34 in 2012, and 7.57 in 2013, with forecast earnings growth of a disappointing -24.20% in 2012, and a respectable 24.17% in 2013. Fairchild Semiconductor International has an estimated price-to-earnings ratio of a slightly better 12.76 in 2012, and 9.57 in 2013, with forecast earnings growth of -18.17% in 2012, and a very respectable 33.42% in 2013. ON Semiconductor has an estimated price-to-earnings ratio of 11.68 in 2012, and 7.01 in 2013, with forecast earnings growth of -23.28% in 2012 and 66.94% in 2013 - all indicating similar outlooks for each company and no clear winner. But there may be some surprises in the making if actual results come in better than expected - especially if superior products come out of the pipeline (see this article).
Demand Media (DMD): Demand Media has a somewhat unique form of a business model. The company finds an area of existing public interest on the internet and then hires writers and other content developers to create quality content on that subject. After developing a website, the company posts the content and sells advertisement space on it, as well as helping the advertisers distribute and optimize their campaign. The company recently reported third quarter results with a revenue growth of 26% coming in at $78.1 million - in line with expectations. Adjusted earnings per share beat analysts' estimates of $0.04 coming in at $0.06 per share (see this article). The share price has fallen dramatically over worries that the company's websites won't be receiving as much traffic due to changes in Google's algorithms but there is nothing definitive in the assumption. The company said its revenue from Google did drop from 33% in the second quarter to 31% but Demand Media is actually partnering with Google in an attempt to diversify its revenue. Demand Media will put an emphasis on video in this partnership developing three new original channels. Demand Media has a PEG ratio of -2.51 reflecting its steep decline and making it extremely cheap in terms of growth. By comparison, ValueClick (VCLK) and interCLICK (ICLK) - two of the company's closest competitors, presently have PEG ratios of 1.04 and 1.72 respectively.
Rovi Corp (ROVI): On November 9, 2011, Rovi Corp reported results that disappointed. The stock nosedived from over $50.00 per share to under $30.00 per share. So the question is -- is this tromping justified or does it create a buying opportunity? After the report, three of the analysts that cover the stock - Collins Stewart, Brean Murray and Credit Agricole Securities - downgraded it (see this article). Of the 12 analysts that cover the stock, 7 strongly recommend you buy the stock, 1 has a buy rating and 4 suggest you hold it. For comparison, RealNetworks Incorporated (RNWK) - one of Rovi Corp's competitors, only has two analysts covering the stock-- 1 with a buy rating and the other with a hold rating. Rovi Corp's closest competitor Logitech International (LOGI) has 5 analysts covering it and only 1 strongly recommends the stock, 3 suggest holding it and 1 thinks the stock will underperform the market. One thing these analysts may have overlooked is a major upgrade to Rovi's Advertising Network: see this very informative article on Rovi's advances in social network marketing. This is growing in popularity and is very dynamic in nature. Rovi Corporation is bringing this marketing concept to products such as set-top boxes, connected TVs, media players and game consoles, which could be very profitable for the company in 2012 and beyond.
NetSuite (N): Since the beginning of October, NetSuite has bounced dramatically from near its 52-week low of $21.07 per share and is presently approaching its 52-week high of $43.36. It is showing some resistance at this point but the stock’s momentum over the past 30 days may carry it through this watermark (see this article for some technical analysis). The company's main competitors in the Software-as-a-Service industry are Sap AG (SAP) and Salesforce.com (CRM). For a little comparison we shall take a closer look at these three companies in terms of growth and stock price. SAP AG presently has a PEG ratio of 1.19 with forecast earnings growth of 11.36% in 2012 and 17.97% in 2013. Salesforce.com has a PEG ratio of a very expensive 24.57 at the current time but has forecast earnings growth of 172.60% in 2012 and 90.42% in 2013 to back it up. NetSuite, on the other hand has a very inexpensive PEG ratio of -3.09 at the present time with forecast earnings growth of 10.57% in 2012 and 44.14% in 2013, making it the best buy of the trio in terms of growth. NetSuite also had a stellar 3rd Quarter and a rosy outlook for 2012 (see this article).
Cirrus Logic (CRUS): This is interesting: first story: Cirrus 2Q sales miss Street view; shares plunge; second story: CORRECTED-UPDATE 1-Cirrus Logic Q2 profit in line. Just goes to show you that you should never have an itchy trigger finger, buying or selling. While the media is making up its mind, let's take a closer look at the street view and that of the company's competitors. First off there are only five analysts covering the stock but they companies are the most reputable in the industry and include the likes of Capstone, Oppenheimer, Stifel Nicolaus and Needham & Company (who incidentally had this to say about the company). Of the five, 3 have a strong buy recommendation and 2 suggest holding the stock. The company's two closest competitors are STMicroelectronics NV (STM) and Texas Instruments Inc. (TXN). STMicroelectronics NV only has 3 analysts covering it with just strong buy recommendation and the other two suggesting to hold the stock. In contrast, almost everyone has an opinion on Texas Instruments Inc. with 33 analysts covering it -- 14 strongly recommend buying the stock, 5 have a buy rating, 13 advise holding the stock and 1 thinks the stock will underperform the market. So on a percentage basis, Cirrus Logic is the most highly recommended of the three.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.