By Richard Evans
With the close of the Consumer Electronics Show in Las Vegas, the market is waiting to see what happens. One smartphone company is best situated to take advantage while others will fall behind. I analyzed five such stocks to see which ones might emerge in 2012, ready to soar.
Telefon AB L M Ericsson (NASDAQ:ERIC) has a recent stock price around $9.54, at the lower end of its 52-week trading range of $8.83-$$15.44. It has a price earnings ratio of 13.90 and an annualized dividend of $0.37 which brings a yield of 3.86%. Ericsson prefers to increase business through strategic alliances and partnerships, a less costly growth strategy. Its latest venture with Sony (SNE) recently introduced four new smart phones. Smart phones are only a part of Ericsson's business, about 20% of total earnings. So Erickson's success is diluted in its performance. The Swedish company also has a high exposure to the eurozone economic environment, and with deep questions there for 2012, Ericsson probably should be a pass.
Nokia Corporation (NYSE:NOK) is the tiny player of this group with a $3 billion market cap. It has a recent stock price of about $5.21 which comes in near the bottom end of its $4.46-$11.75 52-week trading range. Nokia has been beaten down in recent months and short-sellers are betting big that it will continue, with around 24% of outstanding shares being shorted. Also the dividend which once was small at $0.50 now comes out to a mouth watering 10.47%. But that has come as margins have slipped - gross margin stands around 29.40% and badly trails its peers. Earnings have been steadily falling, going from an earnings per share high of $0.30 per share for the 4th quarter 2010 to only $0.20 a share for 3rd quarter 2011. I think that earnings will stabilize around the $0.20-$0.25 range. The good news is it has a big cash vault of $13 billion, but it needs to get its margins up and until there is some sign management has a handle on the problem, Nokia should be avoided.
The company behind the BlackBerry, Research in Motion, Ltd (RIMM) has a market cap of $8 billion, a recent share price listing around $16.17 from its 52-week trading range of $12.45-$70.54. This comes with an earnings per share of $4.25 and a minuscule price to earnings ratio of 3.80. I note that the company has undergone a CEO makeover, with the departure of Jim Balsillie and Mike Lazaridis, though new management does not see any major changes ahead. I think this is a mistake. There are now 75 million users of BlackBerry products, but the company that created the smartphone market is slipping. That is because RIMM has been under siege as competitors have rolled out new technologies and new products. Market share has plummeted 10% this last year even though sales and earnings are slightly up. The depressed share price and price earnings look like a deal, but there is nothing to suggest the slide in market share will continue, eventually making a negative impact on overall sales. RIMM pays no dividend so there is no income bonus. So even though it is at a cheap price, there are better options right now.
Mighty Apple, Inc (NASDAQ:AAPL) is the big boy of the bunch with a $390 billion market cap off a recent share price of around $419.81 and near the top of its 52-week trading range of $310.50-$427.75. Earnings per share lists at $27.67 for a price to earnings ratio of 15.17 and a price to earnings growth ratio of 1.016. It has no debt and a $9.8 billion dollar war chest to purchase companies. While Apple is healthy and should outperform the market in 2012, it is so big that there is only so much upside. It is a good purchase for conservative investors, although for that group Apple pays no dividend. There are other companies with more exciting stories.
In fact, one possible way to go is Cirrus Logic, Inc. (NASDAQ:CRUS) which is a major supplier for Apple. Cirrus has a recent price of about $20.37 and a 52-week trading range of $12.52-$25.48. It has a $2.44 earnings per share which works out to a price to earnings ratio of 8.55, an extremely low number for a growth stock. The stock is partly down because a delayed run-out of new Apple products dampened 3rd quarter 2011 earnings reports. It dampened investors ardor enough that a bearish 8% of outstanding shares are now shorted. Yet Cirrus has an astounding 52% gross profit margin and is expected to have a big bump in earnings from a good holiday season. A strong earnings report could send Cirrus flying high in no time. It also is free of long term debt.
Cirrus does have some questions - its profitability is based on whether earnings really did go up in 4th quarter 2011. But it seems a solid bet, and the upside for this stock is great, making this the best pick of this group.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.