Stock markets sold off sharply in recent trading sessions, and are expected to fall further still. Uncertainty in Europe will lead the headlines: Socialist Party's Francois Hollande won 51.9% of the vote in France. Problems from the Greek election are even greater. The formation of a coalition government is not yet certain, adding to greater negativity on markets.
The negative macroeconomic headwinds could push technology stocks that have already sold off. Opportunities in investing come when shares sell off, but the underlying positive fundamentals have not changed. Five technology stocks insulated from Europe's problems, that recently reported earnings, and have strong long-term fundamentals are discussed.
Corning Inc. (GLW)
Corning is range-bound, as investors grapple between weak demand for televisions, and the company's ability to manage growth in new areas. Corning is a stock to buy for these reasons:
- The company expects glass price declines in the second quarter to moderate compared with the average of the previous 2 quarters
- The goal of $10 billion sales by 2014 is achievable through acquisitions. A large position in Becton Dickinson's Discovery Labware unit will diversify sources of revenue
- Corning has $6.8 billion in cash, up from $5.8 billion in 2011 (due to $750 million debt issuance)
- Current glass inventory levels are at the low end of what company considers healthy
- First-quarter sales were $1.9 billion, up slightly sequentially and consistent with a year ago. Gross margin was 42.4% and lower than the fourth quarter, as we had expected
- Company believes its stock price is trading at a value that is lower than the long-term value of the company: share repurchase or dividend increase is a future possibility
In its last quarterly conference call, Corning said it expected demand from China to start in Q3 and rise in Q4.
Some negative points against Corning are:
- Oversupply for poly (for solar energy panels)
- Investor interest in other OLED makers is hurting Corning shares
Akamai Technologies (AKAM)
Akamai shares dropped from around $38 to close recently at $32.56 after the company said its CEO would be leaving. Key metrics supporting a bullish position for Akamai are:
- Revenue of $319 million in Q1 was up 16% from the same period last year
- Normalized EPS was $0.41, up 8% from Q1 of last year
- EBITDA for the quarter was $143 million.
Akamai forecast Q2 revenue growth would be flat, and EPS would be $0.36 to $0.38, a 7% growth rate year-over-year. Akamai said that delivery for mobile applications would be an area of focus for the company.
Shutterfly, Inc. (SFLY)
Shutterfly shares are down substantially after Facebook bought Instagram. The company remains is a solid social media play with a market capitalization of under $1 billion. In the most recent quarterly earnings call, the company reported an EBITDA of $600,000, beating company guidance of a loss of between $6.5 million and $8 million. GAAP loss was $10 million ($0.29 per share loss). Recent product launches support reasons to own Shutterfly. The two product launches are the Yearbook solution and Treat, a new 1:1 greeting card service.
Shutterfly forecast GAAP gross margins of between 44% to 45%. Q2 GAAP will be a loss of between $24 million and $27 million (a loss per share of $0.33 and $0.37). For the full year, revenue is expected to rise by 24% to between $576 million and $586 million. GAAP earnings are expected to be between $0.07 and $0.16 per share.
Shutterfly is operating in an environment where competitors like Hewlett-Packard (HPQ) are irrational with product pricing. Most recently, HP offered customers a "buy 1 photo book, get 2 free and get 150 free prints and a free photo book for Mother's Day" promotion. If HP reduces its aggressive marketing campaign, the company can beat its earnings forecast in 2012.
Shutterfly also has the scale and scope to compete with HP's Snapfish. Shutterfly acquired Kodak's online photo business for $23.8 million. Revenue from Kodak will not be meaningful this quarter, and the unit will run break-even in 2012.
Despite HP's aggressive price war with Shutterfly in photography, the company is finding a bottom. An analyst at Canalys said recently that HP shipped 40,000 units more than Apple (AAPL), giving HP back its lead in Q1 2012. Later this year, HP and other PC makers will be releasing an ultrabook. If priced competitively, the ultrabook should help all PC makers regain the dramatic drop in netbook sales.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GLW over the next 72 hours.