Technology stocks ended the first quarter in 2012 with the Nasdaq up 19%. With Apple Inc. (AAPL) accounting for nearly 40% of the gains made on the Nasdaq 100, how should investors be trading lower-priced stock issues?
1) OCZ Technology Group, Inc. (NASDAQ:OCZ) - Buy
OCZ was previously reviewed on January 12 after bearish investors increased short positions on the company. Shares traded at $8.13 and subsequently peaked on February 7 at $9.41. Shares pulled back since, and closed recently at $6.98. Events driving the movement in share price are:
- Scheduled fiscal fourth quarter 2012 and year end earnings for the periods ended February 29, 2012 on Tuesday, May 1, 2012 after market close
- Recent public offering of 12M shares
- Over-allotment option exercised (1,013,991 shares) for share offering, resulting in $8.5M in additional proceeds ($109M total)
- Insider sales of 252,000 shares or $1.9M during the quarter, and 714,000 shares in the last 12 months ($5.45M)
- Lower cash flow due to higher capital expenditures required to increase capacity
- Competitor Intel (INTC) and Micron Technology (MU) expanded NAND flash memory agreement
- Growth for Z-Drive R4 PCIe enterprise product will not start until Q1/2012 and accelerate in Q2/2012
The recent pull-back in OCZ represents a buying opportunity for investors with a longer investment time horizon.
2) Alcatel-Lucent (ALU) - Buy
Last covered on February 14 as a buy, Alcatel-Lucent trended flat, closing at $2.27. The company is positioned for investors with a longer-term time horizon. Growth in 4G LTE will benefit Alcatel-Lucent. The 4G network is IP-based and offers carriers better signal quality and higher data download rates.
3) LSI Corporation (NASDAQ:LSI-OLD) - Buy
LSI closed recently at $8.68, up over 25% in the quarter. 32 analysts have an average target price of $11.46 for the semiconductor company, representing a return of 32%. Events driving the share price higher are:
- A higher first-quarter forecast above analyst expectations given by the company
- Assurances that troubles from hard drive shortages are under control
- Option volatility increasing 18.5% to 40.5% (LSI $8.00 4/21/2012 option calls)
4) ATP Oil and Gas (ATPG) - Sell
ATP was reviewed as a stock to sell on December 18, 2011, but rose steadily since that time. Shares closed recently at $7.35, nearly flat for the year-to-date. ATP traded above $8. The reasons for positive share price are:
- Improving bond value: $1.5B of May 2015 11.875% bonds rose to $0.73 (bottomed at $0.59 Feb 1)
- Improving cash flow
- Resumption in work in the Gulf of Mexico
Risks are still high for ATP Oil and Gas. Moody's gave the company a Caa2 rating, the fourth-lowest available, and a negative outlook. In an SEC filing on March 15, ATP said it had $2.01B in debt at the end of 2011. Cash decreased by 58% from 2010 to $65.6M.
In its most recent earnings report, ATP sold oil at prices 35% higher than the previous year at $105.07 per barrel. Natural gas was sold at $4.12 per modified energy factor.
5) Nokia Corporation (NYSE:NOK) - Sell
Nokia was last covered as a company to avoid when shares traded at around $5.00. Nokia closed recently at $5.49. A positive catalyst for Nokia is its entry in the China market with a CDMA-based Lumia 800 smartphone in April (branded 'Nokia 800C'). Nokia is offering the device through China Telecom for $570 (no-contract). In the second quarter, Nokia will sell a Lumia 610.
In the United States, Nokia is releasing the Lumia 900 on April 8 on AT&T (T) for just $100. The aggressive low-cost will help Nokia and Microsoft (MSFT) drive unit sales, but will put pressure on Nokia's margins in the short-term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.