Technology stocks continued to decline again last week, the third straight week of declines. The S&P 500 closed the week nearly flat, the Dow Jones Industrial Average rose 0.5%, and the Nasdaq dropped close to 1%. The negative sentiment was especially devastating for small-cap and stocks trading at below $4. There are four stocks that fell much faster than the Nasdaq Index last week:
(Chart Source: Yahoo Finance)
1) Alcatel-Lucent (ALU) - Buy
Alcatel-Lucent is down -20.26% for the month, and closing at $1.85. Shares are still up 18.59% year-to-date. Speculators drove shares up on optimism that Alcatel-Lucent would benefit from the continued growth in wireless broadband. Key events and statistics supporting a bullish call for Alcatel-Lucent are that the company:
- Benefits from sales in software that will grow with LTE: year-over-year forecast of a tenfold growth in LTE phones to 67.0 million in 2012
- Last month, Wi-Fi technologies that offload cell phone traffic was promoted at the Mobile World Congress show in Barcelona
- Wi-Fi offloading has a high gross margin
- Trades below book value ($2.23) and has a price/book value of 0.84
The company remains a long-term speculative buy. Alcatel-Lucent is still reliant on the older CDMA business.
2) Clearwire Corporation (CLWR) - Avoid
Clearwire, a wireless-broadband wholesaler, fell 32.11% in April, and closed recently at $1.67.
The reasons to avoid Clearwire at this time are:
- Verizon Wireless (VZ) is selling 700 Mhz A and B spectrum, making the value of Clearwire spectrum less valuable
- Company has not reported an annual profit in five years
- Clearwire may be forced to sell its spectrum to improve its weak balance sheet: its total value estimated to be worth $4 billion
- NetZero 4G has an attractive price for consumers and requires no contract (unlike offering from AT&T and Verizon), but its limited availability also limits consumer appeal. The service is only available in 70 cities.
3) Sprint-Nextel (S) - Buy
Sprint-Nextel is down 14.75% in April. It closed at $2.37. Two reasons to avoid Sprint-Nextel are:
- Company is being sued in New York, and is being accused of underpaying $100M in sales tax. The company claims the suit is without merit. Sprint said it "intends to stand up for New York consumers' rights and fight this suit."
- Deal to buy about $15 billion worth of Apple (AAPL) iPhones during the next four years continues to hurt sentiment for shares
The strong consumer focus on lower price is a reason to be bullish on the company. Sprint-Nextel is offering customers a price-advantage for upgrades over Verizon Wireless, which is now charging a $30 upgrade fee. Existing Sprint-Nextel customers who upgrade phones on a 2-year plan pay just $3. Sprint-Nextel has an annual meeting set for May 15, with earnings report due April 25 before market open.
4) THQ Inc. (THQI) - Speculative Buy
THQI shares are up 19.05% this month, closing at $0.75. Shares outperformed the Nasdaq last week but underperformed the index for the year. The company is inherently risky, since its market capitalization is just $51.3 million. In 2007, the company traded at around $36.00. THQ experienced a cash flow crunch after launching uDraw, a game tablet that failed to interest consumers.
Investors have reason to be more optimistic, after the company gave a stronger forecast for earnings:
- Net loss will be between $0.10 and $0.20
- Sales will be $160 million - $170 million, compared to a previous forecast of $130 million - $150 million
- Sales for the "Saints Row" game will be up after its price was cut during the holidays.
THQ will be reporting results on May 15 2012.
5) Nokia Corporation (NOK) - Speculative Buy
Nokia shares closed at $3.70, a price not seen since 1997. Shares are down 30.58% for the month, and down 7.96% for the week after the company reported earnings. Nokia launched the much-awaited Lumia 900 in the United States. The launch will prove to be successful. Verizon is also onboard a third ecosystem. The company's CFO tweeted that:
We created the Android platform from beginning … we are looking to do the same thing with a third ecosystem (Windows Phone).
The highlights from the Q1 conference call are:
- R&D support from Microsoft (MSFT) for Windows Phone will be $1 billion this year
- Sales expectations in the U.S. were met
- Q2 will be the first quarter where full sales for Lumia in major markets are included
- Company has EUR 4.9 billion in net cash
- OpEx dropped by EUR 700 million
- Gross margins for Lumia is 16%
- Lumia just started to arrive in stores in China
- Benefit of cash flow from Microsoft outweighs royalty payments
The negative points from the conference call are:
- Company faced challenges in establishing momentum in the United Kingdom
- Competition from Chinese manufacturers and from Android is putting pressure on pricing
- Sales for devices and services dropped 29% sequentially, and 40% year-over-year
- OpEx run rate for devices and services is still EUR 4.6 billion
- Nokia Siemens Networks is still a drag, with operating margins negative 5%
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in THQI, NOK over the next 72 hours.