3 Technology Stocks To Buy, 4 To Sell

by: Chris Lau

A coordination of central banks to lower interest rates and to use the IMF for eurozone needs resulted not only in a massive rally, but a decline in volatility. The Volatiilty Index, which may be traded with the iPath S&P 500 VIX Short Term Fund (NYSEARCA:VXX), dropped from $49 on Black Friday (November 25) to $40.79 on December 2. This represents a 16.8% drop.

On the Nasdaq Exchange, 50 companies saw short interest decline from between 9.1% and 74.3% between October 30 and November 15 2011. The largest short-decline was for iShares MCSI All Country Asia (NASDAQ:AAXJ) at 74.3%.

There are six companies that should be expected to be able to hold on to this rally, and one still in decline.



Total Short (Nov. 15 2011)

Short % Chg

Last Price (Dec 2 2011)

Comcast Corporation




$ 23.36

JDS Uniphase




$ 10.91

Seagate Technology




$ 16.17

Electronic Arts Inc.




$ 23.00

NVIDIA Corporation




$ 15.72

eBay Inc.




$ 29.60

Research In Motion




$ 16.77

Click to enlarge
  1. Comcast Corporation (NASDAQ:CMCSA) - Buy.

Comcast saw its short position decline by 23.4% to 27,837,880 shares. At $23.36, the company is up 22.38% from a 52-week low, and its P/E is 16.69. The most notable event is that the company will discontinue offering wireless services through Clearwire Corp (CLWR). The company will begin offering phone services instead from Verizon wireless (NYSE:VZ). Comcast is selling spectrum to Verizon, netting $2.3B from the sale for Comcast.

  1. JDS Uniphase (JDSU) - Sell.

Short positions in JDS Uniphase declined 21.1% to 10,832,671 shares. At $10.91, the company is up 27.01% from a 52-week low, with a P/E a whopping 38.96. Shares continue to be trading in a range of between $9 and $12. Volatility decreased substantially on November 30. A JDS December 17 $11 Call saw its volatility decline 12.7% to 66.6%.

In its most recent earnings, JDS reported a loss of $5.8 million (-$0.03 per share) compared to break-even the year before. The company lowered its revenue forecast for the second quarter. It attributed a $35 to $45 million loss in revenues due to flooding in Thailand.

  1. Seagate Technology (NASDAQ:STX) - Sell.

Short positions in hard-drive maker Seagate Technology declined 18.1 to 012,551,324 shares. Shares last traded at $16.17 with a P/E of 14.57. This is far higher than Western Digital shares (NYSE:WDC), whose P/E is 9.64 even after a 7.5% rally on December 2.

Western Digital is resuming some production in Thailand, and represents a better investment proposition than Seagate.

  1. Electronic Arts (ERTS) - Buy.

Electronic Arts (ERTS) saw short share volume decline 14.1% to 14,098,147 shares. After bouncing from a $21 low in November, the company may see a rebound in December as Zynga IPO’s.

Zynga is trying to IPO and raise $925M, representing a $9.04B market cap. At $23, EA’s $7.62B lower market capitalization does not make any sense. Either Zynga must fail in its IPO, or EA trades higher. Investors may want to buy EA ahead of a successful Zynga IPO.

  1. NVIDIA Corporation (NASDAQ:NVDA) - Sell.

NVIDIA traded recently at $15.72, and saw the short position decline 11.6% to 27,353,572 shares. Its P/E is at a steady 15, and continues to trade at a premium over Intel (NASDAQ:INTC) due to strength in mobile and tablet graphic chips. Shares also continue to be range bound between $12 and $16. At a mid-range price, NVIDIA does not look to offer upside at current prices.

  1. eBay Inc. (NASDAQ:EBAY) - Buy.

eBay closed recently at $29.60, implying a P/E of 21.61. The short position declined 8.2% to 13M shares, as investors traded EBay from the $28-level in November. eBay will continue to be a beneficiary to the growth in online shopping. Its PayPal unit will also continue to grow at a rate unappreciated by the market.

  1. Research in Motion (RIMM) - Sell.

RIM shares saw a decline in shorts to 44,658,200 or 3.7%. With a P/E of just 3.07, short-sellers covered in November in anticipation of a strong December earnings report. RIM subsequently issued a warning, after shares peaked at $18.58 on December 1. Unlike Hewlett Packard (NYSE:HPQ), RIM is determined to grow its tablet division. It is taking a $485M charge in the process.

RIM’s new BBX is seen as RIM’s saving grace, but shares will stay depressed through 2012. The QNX on the Playbook already has similarities to BBX, but saw many upgrade delays since its April 2011 launch. QNX 2.0 for Playbook is scheduled to be released on February 2012.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.