The technology sector continued to out-perform the Dow Jones Industrial Average and the S&P 500. The Nasdaq closed at 2,951.78 for the week ending February 17. It is up over 12%, more than double that of the Dow Jones.
(Image Source: Yahoo Finance)
Jim Cramer, host of Mad Money on CNBC, was less bullish on the stocks covered between February 10 to February 16. Of the 67 stocks, Cramer said 43, or 64.2%, were "buys." 24 were called "sells." Within the technology sector, Cramer was bullish on just 3 of 11 companies. The large cap companies, namely Intel (INTC), Dell Inc. (DELL), and Apple Inc. (AAPL) are obvious stocks to buy, given a strong balance sheet and consistently strong sales:
Zynga Inc. (ZNGA)
Activision Blizzard, Inc (ATVI)
Renren Inc. (RENN)
JDS Uniphase Corporation (JDSU)
Nuance Communications, Inc.
Dell requires special attention. The stock is already up 24.13% in 2012, and offers little additional upside. The Wintel PC market is expected to grow far less as compared to the tablet and computer sales by Apple. When Dell reports on February 21, investors should expect solid margins. Dell forecast a 2011 earnings per share of $2.04. This would give Dell a P/E of 8.9, with Dell last trading at $18.16. Hewlett-Packard (HPQ), which is up 14.87% for 2012, reports February 22.
Zynga, which Cramer called a "sell," dropped 11.13% from its high in recent trading sessions. The company is highly reliant on user referrals on Facebook. Zynga said that it was planning to reduce its dependence on Facebook, with a service called "Project Z," which is positive for investors. Investors should be aware that despite this diversification, revenue generated in the Zynga network will still yield a commission to Facebook. This is due to the use of "Facebook credits" for the payment of virtual goods.
Cramer continued his bearish theme for social networking stocks by calling Renren a "sell." Renren is a Chinese social networking company. The company guided on Q4 with a non-GAAP operating loss of $15M - $17M. Shares closed recently at $5.43. Shares rallied at the start of the year on high volume, but trading action lightened each trading session in February.
While Zynga is trying to be like a traditional game maker, Activision is still a solid franchise. Cramer rated Activision a "sell." Shares are once again at a mid-point, trading 17.6% above its 52-week low, and 15.1% below its 52-week high. During its conference call, the company announced:
- Dividend increase by 9% to $0.18 per share
- $1B stock repurchase plan
- $3.5B in operating cash flow
- 50M monthly active users on online platforms
Activision's $4.8B in revenue netted $0.93 per share (non-GAAP). Investors should note that its quarterly non-GAAP EPS was $0.62, while GAAP earnings were $0.08. The company provided a forecast of $0.94 non-GAAP EPS for 2012.
Activision looks more like a stock to buy. The company continues to do well with the Call of Duty Franchise. Further, the "Spiderman" game release will coincide with the movie this summer, which will boost shares. Finally, Diablo 3 is scheduled to launch in 2 quarters (Q2/2012).
In the networking space, Cramer said JDS Uniphase was a stock to "sell." In its most recent quarterly results, the company reported weak margins and lower revenue. Investors are optimistic for JDS, as shares closed at $14.93, up nearly $3 since its earnings were announced. Risks remain for JDS, as margins for its fibre laser require revenue to be above $190M. After its analyst day on February 16, the company announced a "PacketPortal" product. The product supports 4G/LTE and is used to help service providers operate data networks more efficiently.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.