We are nearing the end of the second quarter. Often this is when a phenomenon known as window dressing takes effect. Money managers sell their losers and buy the quarter's winners in an effort to appear in the know. This process coupled with the extreme correlation in stocks and recent unbridled volatility often results in the creation of significant buying opportunities.
It's times like this that I search for diamonds in the rough. Diamonds in the rough are stocks hitting their lows which may be oversold. The stocks have fallen to levels where significant value is possibly created. I believe the following five technology companies may fall into this category. Please review the subsequent section for an analysis of the five companies.
First, these five companies are trading well below their 52 week highs and consensus estimates. The companies are trading on average 35% below their 52 week highs and 28% below their consensus analysts' mean target prices.
Second, our five stocks have positive EPS growth rates and share prices trading at or below $15. Stocks trading for $15 or less tend to have a higher beta which provides the opportunity for greater returns (or losses) relative to the market. These are S&P 500 stocks with market caps of more than $2 billion. We use a speculative screen to find solid companies that may provide more bang for your buck.
Finally, a few of these companies beat analysts' estimates regarding earnings and raised guidance last quarter. With the next earnings season kicking off in July and end of quarter window dressing in full effect, it may be time to pick up these stocks at the current bargain basement prices. Now, simply screening for S&P 500 stocks trading significantly below consensus and 52 week highs, with under $15 share prices and strong EPS growth data is only the first step to finding winners that may provide alpha.
In the following sections, we will take a closer look at these stocks to determine if the mean target prices are justified. We will perform a brief review of the fundamental and technical state of each company. Additionally, we will discern if any upside potential exists based on sector, industry or company specific catalyst. The following table depicts summary statistics and Wednesday's performance for the stocks.
Dell Inc. (DELL)
DELL is trading well below its consensus estimates and its 52 week high. The company is trading 33% below its 52 week high and 31% below the analysts' consensus mean target price of $16.13 for the company. DELL was trading Wednesday for $12.33, up over 3% for the day.
Fundamentally, DELL has several positives. The company has a forward PE of 6.07. DELL is trading for approximately 2.32 times book value and only 5.08 times free cash flow. EPS next year is expected to rise by 4%. Dell's ROE is 35.90%. Stifel Nicolaus Reiterated their But rating on the stock in May with an $18 price target.
Reuters recently reported Dell, unsurprisingly, is the "strategic bidder" that just made a $27.50/share offer for Quest Software (QSFT). Dell is in the midst of reinventing itself. I have faith that Michael Dell has the means and the tenacity to make this happen. The stock got walloped after last quarter's earnings announcement disappointed. The stock is a buy here.
Juniper Networks, Inc. (JNPR)
Juniper is trading well below its consensus estimates and its 52 week high. The company is trading 53% below its 52 week high and 35% below the analysts' consensus mean target price of $20.90 for the company. Juniper was trading Wednesday for $15.88, up almost 1% for the day.
Fundamentally, Juniper has several positives. The company has a forward PE of 13.79. Juniper is trading for approximately 1.15 times book value and only 14.87 times free cash flow. EPS next year is expected to rise by 38%.
UBS, which has been airing bearish comments about the telecom equipment space for a while, thinks Riverbed Technology, Inc. (RVBD), F5 Networks, Inc. (FFIV), Juniper, and Aruba Networks, Inc. (ARUN) are at risk of missing Q2 estimates or lowering guidance due to a weakening demand from Europe and the U.S. government. Juniper's stock appears to be in a nose dive at this time with major headwinds on the horizon. The stock is a sell.
NVIDIA Corporation (NVDA)
NVIDIA is trading well below its consensus estimates and its 52 week high. The company is trading 22% below its 52 week high and 25% below the analysts' consensus mean target price of $16.44 for the company. NVIDIA was trading Wednesday for $13.14, up over 3% for the day.
Fundamentally, NVIDIA has several positives. The company has a forward PE of 13.98. NVIDIA is trading for approximately 1.90 times book value and only 13.75 times free cash flow. EPS next year is expected to rise by 30.56%. Northland Securities initiated coverage on the company on June 27th with an Outperform rating and a price target of $16.
Gizmodo recently reported Google's (GOOG) Nexus tablet will feature an Nvidia Tegra 3 processor and a 7" display. An 8GB version of the device, which will be called the Nexus 7, will sell for $199, and a 16B version will go for $249. This is a positive catalyst for the company. The stock has recently showed signs of strength. I like the stock here.
Sprint Nextel Corp. (S)
Sprint is trading well below its consensus estimates and its 52 week high. The company is trading 46% below its 52 week high and 24% below the analysts' consensus mean target price of $3.88 for the company. Sprint was trading Wednesday for $3.13, flat for the day.
Fundamentally, Sprint has some positives. Sprint is trading for approximately 89% of book value and only 28% of sales. EPS next year is expected to rise by 29.40%. Insider ownership is up 45% over the past six months.
Sprint says its 4G LTE network, which its building out with Clearwire's (CLWR) help, will go live in five cities on July 15th. The launch will be supported by five devices, including Samsung's Galaxy S III. Verizon (VZ) and AT&T's (T) lead in deploying LTE, the result of Sprint's prior decision to opt for the much less popular WiMAX as its 4G technology, has Sprint scrambling to catch up. Separately, Tero Kuittinen argues T-Mobile's woes could work to Sprint's benefit. This could be a major catalyst for the stock. The stock is a buy.
Texas Instruments Inc. (TXN)
TXN is trading well below its consensus estimates and its 52 week high. The company is trading 12% below its 52 week high and 27% below the analysts' consensus mean target price of $34.27 for the company. TXN was trading Wednesday for $27.07, slightly up for the day.
Fundamentally, TXN has several positives. The company has a forward PE of 11.57. TXN is trading for approximately 2.80 times book value and only 17.42 times free cash flow. EPS next year is expected to rise by 31.46%. Northland Securities initiated coverage on the company on June 27th with a Market perform rating and a price target of $30.
Per comScore, Amazon's (AMZN) the Kindle Fire is taking market share. TXN is the main provide of chips for the device according to a tear down by iFixit. This bodes well for TXN. I like the stock here.
It's more important where a stock is going than where it's been. All these stocks are down significantly from 52 week highs and analysts' estimates. Even so, only four of the five stocks have positive catalysts on the horizon. Juniper looks challenged near term.
Use this information as a starting point for your own due diligence and research methods before determining whether or not to buy or sell a security. If you choose to start a position in any stock, I suggest layering in a quarter at a time on a weekly basis at a minimum to reduce risk and setting a 5% trailing stop loss order to minimize losses even further.