The stock market has been in rally mode for the first three months of 2012, and many tech stocks have been leading. Apple (AAPL) has been surging for the past couple of months and it has helped to propel the tech sector and the whole market higher. After such a strong rally, it could be time to take some profits, and consider buying your favorite tech stock at a lower price.
It is easy to make a strong case for a correction as many challenges loom for the world economy in 2012. The European debt crisis still poses a systemic threat to the global financial system. The U.S. is facing debt challenges later in 2012. Tensions with Iran over their nuclear program remain elevated. Overall, there is plenty to worry about and the tech sector could be poised for a significant correction.
Earnings season is coming up and SanDisk (SNDK) just warned that first quarter sales would be weaker than expected. Revenues were expected to be around $1.3 to $1.35 billion for the first quarter, but the company is now expecting revenues of about $1.2 billion. That is quite a shortfall, and even more worrisome is that SanDisk is a supplier to Apple.
Chances are that more tech companies will warn or miss earnings for the first quarter. When companies miss earnings, the stocks often see substantial declines, especially if it is trading at elevated levels. Just a few prominent tech company warnings could be enough to take the whole sector down and provide better buying opportunities. Here are a few solid tech stocks to consider buying in the next correction:
Intel Corporation (INTC) is an "old" tech company that continues to innovate and keep itself relevant. It designs and manufactures chips used in notebooks, netbooks, desktops, mobile phones, consumer electronics devices, etc. Warren Buffett has a significant investment of about 9.3 million shares in Intel.
In the past, Mr. Buffett has not been a fan of tech stocks, as new technologies come and go. However, Intel has endured through many product and economic cycles very successfully. Intel also has a very strong balance sheet and a solid dividend, so buying on major dips makes sense overall. Intel shares were trading for about $24.50 per share early in 2012, and buying on dips at the level makes sense.
Here are some key points for INTC:
- Current share price: $27.93
- The 52 week range is $19.16 to $28.45
- Earnings estimates for 2012: $2.42 per share
- Earnings estimates for 2013: $2.62 per share
- Annual dividend: 84 cents per share which yields 3%
Corning Inc., (GLW) is one major supplier to Apple that hasn't seemed to benefit from the massive success of the iPhone, iPad and other products. Corning has developed a product called Gorilla Glass, which is used on flat screen televisions, tablets and mobile phone devices. The problem is that flat screen televisions have seen slower sales and weaker margins, which has impacted overall results for Corning. However, this company is likely to benefit from Apple's growing sales of the iPads and iPhones, and the company plans to launch "Gorilla Glass 2.0" which could add growth potential for the stock. The stock has dropped below $13 per share recently, so dips to around that level would be a better buying opportunity.
Here are some key points for GLW:
- Current share price: $13.70
- The 52 week range is $11.51 to $22.05
- Earnings estimates for 2012: $1.35 per share
- Earnings estimates for 2013: $1.49 per share
- Annual dividend: 30 cents per share which yields 2.2%
Broadcom Corporation (BRCM) designs and manufactures specialized semiconductor chips which are often used in mobile and other communications devices. Some of Apple's most popular products such as the iPhone use Broadcom chips and Apple is one of Broadcom's largest customers. This stock does not have a strong dividend and that could make it prone to sharper declines in a market correction.
On the positive side, Broadcom has a strong balance sheet with about $4.5 billion in cash, and only around $1.2 billion in debt. With earnings estimates coming in at about $3 per share, the stock trades for around 13 times earnings which is in-line with the average stock in the S&P 500 Index. This stock appears to have strong support around $34, so any dips to that level should be considered as a buying opportunity, and would put investors into the stock at about 10 times forward earnings.
Here are some key points for BRCM:
- Current share price: $37.54
- The 52 week range is $27.59 to $41
- Earnings estimates for 2012: $2.90 per share
- Earnings estimates for 2013: $3.21 per share
- Annual dividend: 40 cents per share which yields 1%
SanDisk Corp. (SNDK) shares plunged after this flash-memory maker announced it would report weaker than expected sales in the first quarter of 2012. This stock fell from about $50 per share to about $44.50, after the announcement. These shares look cheap now as it trades for just about 10 times earnings estimates.
However, it's too early to buy since those estimates are probably high. Furthermore, if the first quarter earnings report also has a weak tone in terms of guidance for Q2, then the shares could have significant further downside. It makes sense to wait until after the financial results before considering this stock.
Here are some key points for SNDK:
- Current share price: $44.51
- The 52 week range is $32.24 to $53.46
- Earnings estimates for 2012: $4.70 per share
- Earnings estimates for 2013: $5.46 per share
- Annual dividend: none
Data is sourced from Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.