3 Potential Tech Buys Ready To Move, 2 To Avoid

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 |  Includes: FSLR, GRPN, NVDA, RVBD, SFLY
by: Chris Lau

The Nasdaq Composite Index closed down for the week, finishing the week at 3,080.50. This is just the 3rd time in 2012 the index made a lower weekly close. Does the recent decline signal more losses ahead?

Taken from a higher-level view, stock markets rallied in the absence of any bad news coming from Europe. The LTRO, or long-term refinancing operation, by the European Central Bank no doubt stabilized markets. Still, a Spanish bond auction last week was weak. Only 2.6bn euros in bonds were sold. This was far below the maximum 3.5bn euros with yields at 5.67%. In the United States, 10-year Treasury yields dropped the largest amount in 5 months.

The bond activity does not indicate that technology stocks will fall, but companies facing rising short volumes should get a second look. The following technology companies saw short volume increase the most between February 29 and March 15, 2012:

Company

Avg. Volume

Mar 15 2012

% Change

Riverbed Technology, Inc. (RVBD)

3,758,150

6,892,438

25.80%

Shutterfly, Inc. (SFLY)

1,335,200

7,866,003

22.50%

Ctrip.com International Ltd. (CTRP)

3,361,930

13,250,906

21.90%

CA Technologies (CA)

3,911,500

10,256,248

20.00%

Activision Blizzard (ATVI)

10,995,300

29,222,377

16.40%

NVIDIA Corp. (NVDA)

14,113,000

19,745,905

15.00%

First Solar, Inc. (FSLR)

5,427,250

21,238,015

14.20%

Groupon, Inc. (GRPN)

2,259,540

21,675,204

13.90%

Click to enlarge

Riverbed Technology - Potential Buy

Closing down for the week at $27.18, Riverbed Technology saw short volume increase 25.8% to 6.89M shares. In its 4th quarter, the company reported a 32% rise in revenue for 2011, and a 23% rise in the reporting period. Full-year earnings were $0.90, giving Riverbed a P/E of 30.2. Investors are skeptical that the company will be able to deliver improving margins in 2012. Days sales outstanding rose to 35 days in Q4 compared to 33 in Q3. Its new Steelhead platform will take multiple quarters before sales picks up.

Investors with a short-term time horizon are creating a buying opportunity for those with greater patience. Investors will know how the company performed in the first quarter when Riverbed reports on April 19, 2012 after market close.

Shutterfly, Inc. - Potential Buy

Shares in Shutterfly are down in recent trading sessions. After trading above $33, Shutterfly sold-off and closed at $29.47, at its 50-day simple moving average. Short volume increased 22.5% to 7.87M shares as of March 15. Shares received a boost in March after the company made an important strategic move to buy Kodak's online photo business. The drop in Shutterfly shares represent an entry point for investors who were unwilling to pay for the premium resulting from the Kodak acquisition. Shutterfly's history in generating higher margins in the companies it acquires makes the company a good long play. For example, the acquisition of "Tiny Prints" helped Shutterfly report full year 2011 margins of 17.7%.

NVIDIA Corp. - Potential Buy

Bearishness increased in shares of NVIDIA. Short volume increased 15% to 19.75M shares. NVIDIA closed recently at $14.63, a price still higher than its March 2012 lows. The dominance of Apple (AAPL) iPads in the tablet space makes NVIDIA shares less appealing. Bearish investors are overlooking the strength of "Keplar" GPUs, and a strong likelihood that the 28 nanometer manufacturing capacity will improve this year.

Despite the growth in iPads, the PC remains a large market for graphics chip makers. NVIDIA remains a good core holding for investors with the tolerance for the big price moves in the stock.

First Solar, Inc. - Avoid

First Solar short volume increased 14.2% and closed at $20.98. The company was recently thought to have found a bottom, but any upside is likely to be short-lived. The excess supply and drop in demand for solar panels has yet to be complete. Any claims of module pricing stability remain a guess. Investors should avoid First Solar until the downtrend ends.

Groupon, Inc. - Avoid

Bears were correct in betting against Groupon. Short volume increased to 21.68M shares as of March 15 2012. After the market close on Friday, March 30, Groupon restated its 4th quarter earnings. The company saw refunds for its coupon deals increase sharply. The revision is worrisome because it shows there is a lack of adequate internal controls. The magnitude of the loss also suggests that Groupon will find it increasingly difficult to sell higher priced, higher-margin goods as it seeks to grow in its market. Investors should take the opportunity to sell Groupon shares on any short-term bounce.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NVDA over the next 72 hours.