3 Tech Stocks Promising Upside, 2 To Avoid For Now

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 |  Includes: BBRY, INTC, MSFT, NOK, YHOO
by: Chris Lau

The Nasdaq composite index continued its ascent for 2012, rising from around 2,700 on Friday, January 13, to close at 2,786.70 on January 20. The 3.2% rise last week was supported by strong earnings from Microsoft (NASDAQ:MSFT) and Intel (NASDAQ:INTC). The departure of former CEO Jerry Yang helped Yahoo (NASDAQ:YHOO) shares. With all the good news out, is there more upside for these companies?

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Company

Price on Jan 20 2012 ($)

Jan 20 Vol. (million)

Avg. Vol. (million)

1

Microsoft Corp.

29.71

165.9

55.7

2

Intel Corp.

26.38

101.3

54.8

3

Yahoo Inc.

15.96

22.0

21.9

4

Research In Motion

17.00

18.1

22.9

5

Nokia Corp.

5.61

26.7

30.0

Click to enlarge

Microsoft (MSFT) delivered record earnings per share of $0.78. The company warned a few days prior that PC sales would hurt results. At its conference call, the company highlighted strength in its server business, desktop business (where Windows 7 is found in one-third of worldwide enterprise desktops), and strong sales for the Xbox and Kinect device. Closing at $29.71 and up 5.65% on the day, Microsoft broke free from its 2-year trading range of between $24 and $29.

Shares are positioned for more upside, as long as bad news from the European sovereign debt crisis does not sour consumer optimism. Microsoft is well-positioned for the year: executives reiterated on the earnings call that Windows 8 beta will be available in late-February. Strong interest in Windows Store will be another reason for consumers to turn their interests back to a Windows-based desktop/laptop system.

Similar to Microsoft, Intel (INTC) reported solid earnings. The company broke ground on a 14-nanometer fab, crossed $50B in revenue for the first time, and increased its unit growth for PC's in China. China now accounts for 20% of all PC demand. In a 12-month period, unit growth was 22% in India, 37% in Indonesia, and 15% in China. For the year, Intel promises upside because it is launching its first 22-nanometer product called "Ivy Bridge." Hyped at the CES event at the start of the year, Ultra books will help Intel sustain revenue growth. Intel is increasing marketing for this line, which should translate to higher profits.

Not to be left out of the headlines, Jerry Yang put Yahoo Inc. in the spotlight last week when he announced he would leave the board. Yahoo shares failed to trade above $16, a trading level that was reached on at least 4 occasions since October 2011. Yahoo shares promise upside in 2012 because Yang's departure will accelerate much-needed executive changes. This should help the company focus on its core competencies, shed costs, and speed up asset sales.

There are two stocks to avoid for now.

Research in Motion (RIMM): It seems as though the only thing supporting positive price action in Research in Motion is rumors of a buyout. The latest rumor, that Samsung would buy RIM, helped push shares up to $17.89. When Samsung issued a statement on Wednesday January 18 to deny the rumor, shares promptly fell. RIM is still a company to avoid for now, despite positive developments for its Playbook 2.0 launch in mid-February.

On late Sunday January 22, it was reported that the co-CEOs would step aside. The company is promoting COO Thorsten Heins as CEO. Unfortunately, when asked what he thought of his appointment and the new chair appointment, Heins said, "Change to what? Change for what?"

Still, Heins promised to hire a chief marketing officer. He was instrumental in building brand awareness in the emerging markets. This will ensure that RIM's BB7 rollout performs well in these regions.

Nokia (NYSE:NOK) is finding buyers for its shares. Nokia is a company to avoid. Nokia pays a yield of 9.30%, but that level is not sustainable. The company reviews its dividend policy only annually. Investors should expect this dividend to be cut, which will be a negative for Nokia shares. On the positive side, Nokia is selling its Windows Phone (Nokia Lumia 710) for just $50 on contract. In Europe, an unsubsidized phone costs 270 euros. Evidence for strong sales for the Lumia in North America and in Europe would negate the bearish call on Nokia.

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