I have identified five stocks seeing significantly lower trading volume on the Nasdaq recently. Intel (INTC), Frontier Communications (FTR), Sirius XM (SIRI), Microsoft (MSFT) and Cisco Systems (CSCO) were all down by significant amounts. In the following article, I will discuss the trading volume decreases and whether these pullbacks have created any good buying opportunities in the above mentioned stocks.
Frontier Communications Company: With a three month average trading volume of 18,013,700 shares, trading volume has recently been much lighter at 10,616,264 shares. Standard & Poor's changed its outlook on the company from stable to negative. Essentially, Frontier's problems are strong competition from cable telephone providers as well as increased popularity of wireless phones. While many investors may feel that Frontier is a sinking ship, I beg to differ. The company had over $600 million of free cash flow in 2010 and over $500 million of free cash flow in the first three quarters of 2011. Most of that free cash flow was then distributed as dividends, which is exactly what you as an investor should want. With a dividend yield of 17.4%, Frontier is helping some investors bring in some serious income right now. Frontier may not be offering its customers the best technology in the world, but this company never tried to do that anyway. Investors who buy Frontier stock probably won't see any capital appreciation, but a dividend yield of 17.4% is obviously very nice. Frontier had $1.222 billion of operating cash inflow during 2010, and $1.272 billion of operating cash inflow during the first three quarters of 2011. Until those numbers start to drop off, this dividend should be considered relatively safe.
Sirius XM Radio Inc: After averaging a heavy trading volume of 55,133,900 shares over the past three months, volume has recently dropped to 18,225,238 shares. One factor recently affecting this stock is Spotify's announcement that it had reached 3 million subscribers. Investors are becoming increasingly aware that Sirius XM faces tough competition from a number of sources, and I believe this is a legitimate concern. Sirius XM currently has a price to earnings ratio of 51. Obviously, part of that can be justified by Sirius XM's future growth, but I would not advise investors to pay 51 times earnings for this stock. At some point, Sirius XM's growth will be stunted by the seemingly endless amount of businesses that compete with Sirius XM in one way or another. More specifically, there are obviously consumers out there who are making the conscious decision not to sign up for Sirius XM because Spotify is cheaper and/or Pandora (P) (with ads) is free. That doesn't mean there's something wrong with Sirius XM though because the higher-priced service has some exclusive content and perhaps better quality. For instance, former Indianapolis Colts GM Bill Polian will be taking a role at Sirius XM NFL Radio, and Sirius XM is also debuting "The Badget with Howard Safir," which figures to be a provocative show about law enforcement. These are two solid additions but not worth paying over $2 a share for.
Intel Corporation: Intel has a three month average trading volume of 51,631,800 shares, while its recent trading volume has been much lighter, hovering around 16,777,678 shares. What's driving this stock right now? One recent headline for the company is its $120 million deal with RealNetworks. Intel will gain access to 190 patents, 170 patent applications and RealNetworks' video codec software. Intel also announced earnings not too long ago. The PC and server business performed well, while the company's netbook chip sales were a bit weak. During the earnings report, Intel announced a significant increase in capital spending, which figures to be part of its war against companies like Nvidia (NVDA) that are beginning to use ARM Technology. I believe this is a necessary move on Intel's part and will help the company be competitive going forward. With total cash of nearly $15 billion, Intel is obviously in a supreme financial position right now. Having lost ground in the mobile game, however, the company will need to retool in order to keep its position as the No. 1 semiconductor maker. I recommend investors tag along for the ride because the stock is currently offering a dividend yield of 3.1%. I predict that Intel's capital expenditures will allow it to successfully outperform its competitors, especially in the PC market, and give rise to future dividend increases.
Microsoft Corporation: Trading volume has recently dipped to 19,711,159 shares, after averaging a trading volume of 55,050,800 shares over the past three months. The company recently reported earnings. Earnings per share were better than analyst expectations, although revenue was a bit of a disappointment. Windows revenue in particular declined 6% due to lack of consumer demand, although Xbox revenue actually increased by 15%. The company's server and tools division also saw a nice increase in sales - that number was 11%. Clearly, Microsoft's best products are shifting as the Windows franchise becomes less valuable. With tablets and smart phones out that are more useful than the personal computers of old, the company will have to adjust in order to stay competitive. I would recommend Microsoft stock to dividend-minded investors because the current dividend yield is 2.70%. That's impressive for a technology company, and neither Apple (AAPL) nor Google (GOOG) offer dividends right now. Meanwhile, Oracle (ORCL) has a paltry dividend yield of 0.80%. On the other hand, investors looking for price appreciation would be better off choosing Apple or Google, which have price/earnings to growth ratios of 0.56 and 0.73, respectively. Microsoft's price/earnings to growth ratio is 1.32, which is obviously significantly higher. Apple's and Google's respective products in the mobile industry are what make them so strong, and these companies probably have more upside. Quite simply, Windows is no longer the most dominant technology franchise on the planet.
Cisco Systems, Inc. Over the past week, the company saw a lower trading volume of 24,892,234 shares, compared to an average trading volume of 45,840,100 shares over the past three months. The company just released an interesting new report saying that its Unified Computing System blade servers now have 10,000 customers. It is true that Cisco's market share has grown significantly over the past couple of years, although Hewlett Packard (HP) is still the industry leader by far with a 50.5% share. Needless to say, Hewlett Packard's 2.7% growth is actually quite large considering what the base of that growth was. In other news, Auriga Securities analyst Sandeep Shyamsukha has upped his price target of Cisco to $24. Mr. Shyamsukha says that Cisco's estimates are probably conservative and increased his own earnings estimates for the company as well. Mr. Shyamsukha also praised Cisco for its restructuring efforts, noting that the sales and decision-making processes appear to be improved. I am inclined to agree with Mr. Shyamsukha, and Cisco offers better value metrics than Juniper Networks (JNPR). Cisco's price to earnings (16.89), price/earnings to growth (1.34) and price to sales (2.44) ratios are all lower than Juniper's. Cisco's 1.2% dividend yield is nothing to write home about, but this stock should see price appreciation as investors realize that the company has made some truly impressive market share gains.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
