2012 has seen one of the best starts for stock markets in past several years. The rally is led by tech stocks, with NASDAQ gaining 13.51% YTD. However, some of the tech stocks haven't participated in the rally. The following is a list of five tech stocks which have posted losses Year to Date in 2012.
Chunghwa Telecom Co. Ltd.
I am not too positive on the prospects of BCE, Chunghwa Telecom, Groupon and SNDK going forward. However, I believe that Google's recent underperformance presents a buying opportunity and would recommend going long on it.
BCE is Canada's leading telecommunications company, with a dominant position in traditional telecom services in eastern Canada, the second largest national wireless operation and a growing TV/video delivery business.
BCE recently reported mixed Q4 2011 results with revenues in line with consensus and an EPS of $0.62 against consensus estimates of $0.65. Its wireline segment's performance was particularly negative with 4% y-y decline in revenues driven by market share decline in access lines and weak growth in data and TC adds. Its wireless segment posted good revenue growth driven by more post-paid adds and smart phone upgrades. However, going forward, the competitive environment in wireless is set to be challenging, with increased competition from new entrants.
Given the declining wireline business and competitive threats in the wireless business, I don't see any prospects of near term upside in the stock and would recommend selling it.
Chunghwa Telecom is Taiwan's incumbent integrated telecom operator. It provides local, long-distance and international calling, 2G GSM and 3G WCDMA mobile services, data and broadband internet services, satellite communication, corporate and enterprise solution services.
CHT completely dominates fixed line and broadband markets in Taiwan, with about 95% and 82% market share respectively. Its market dominance is the key reason I am wary of the stock. On the one hand, its current dominance makes it difficult for it to expand market share. On the other, it is also making it prone to competitive and regulatory headwinds. From the competitive perspective, cable operators have recently launched promotions for high speed broadband (24Mbps and 60 Mbps) competing with CHT's 20Mbps and 50Mbps. On the regulatory side, it is facing risks in the form of Mandatory Tariff Reduction and Single Nationwide Fixed Call Tariff. Both these factors can cause severe pricing pressure and margin reduction for CHT.
While the opportunities space for CHT is not empty (smartphones and cloud computing), they require higher Opex and Capex. Also, with CHT's latest investment in China Airlines, there is negative sentiment in the market regarding management's use of excess cash in non-core business investments. With its trading multiple close to historical highs, I believe there is little room for price appreciation in the near term and would recommend selling it.
Groupon is my third sell recommendation in the above list. Groupon is facing stiff competition and burning significant amounts of cash. The business has relatively low barriers to entry, and at a market cap of $14 billion, investors are clearly pricing in too many positive expectations for a company that is hardly making any profits.
SanDisk is engaged in designing, developing and manufacturing data storage solutions in a range of form factors using the flash memory, controller and firmware technologies. The Company operates a flash memory storage products segment. Most of its products are manufactured by combining NAND flash memory with a controller chip. The Company's solutions include removable cards, embedded products, universal serial bus drives, digital media players, wafers and components. Sandisk's stock price has gained 45% from its August 2011 lows. I don't think it's a good time to invest as the stock is almost near its 52 week high. Furthermore, the recent departure of the company's CTO Yoram Cedar, who was well perceived within the investor community, is a negative for the company.
Google is the only stock in the above list which I would recommend going long on. Google is a defensive stock with high growth rate. The company's leadership position in its core search business is what makes it a defensive stock. Its main competitors, Bing and Yahoo Search, have been unable to pose any meaningful threat to Google-- despite burning a good amount of cash. From a growth perspective, Google is likely to post a double digit growth rate for the next several years as a secular shift of advertisers from traditional media to online media continues. Its mobile business is likely to be another major growth driver.
Many of Google's web properties are undermonetized. For example, only 3% of YouTube videos are monetized through video advertising. This can increase significantly going forward. I see big potential from the recent announcement by Google that it will be launching 100 online video channels on YouTube that feature new original programming from celebrities such as Jay-Z, Madonna, Shaquille O'Neal and Tony Hawk.
This venture will generate ~25 hours of new, on-demand, original content per channel per day, and Google is reportedly paying up more than $100 million in advance to its content partners. I believe this and similar partnerships can potentially have a very big impact in the long run, as more and more original content comes online through these partnerships. Quality content is likely to bring in more advertisers, and thus help in further monetization of Google's properties.
Google is trading at a forward PE of just 12x, despite the expected 20% top and bottom-line growth next year. Although some investors are worried about increasing dominance of Facebook (FB), I think it's too premature to say that Facebook can adversely affect Google's core search and advertising business. I find the risk-reward profile of Google very attractive at these levels.