I have selected five companies with recent news to review. I believe three are poised to move higher based on upcoming catalyst while two will most likely drop in value. 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 analyze potential sector, industry and company specific catalyst.
The market ended the day with slightly down as disappointing numbers triggered a sell off. Retail sales data did not live up to expectations while business inventories rose more than expected. Empire Manufacturing surpassing projections was the lone bright stop. The tech sector has been getting shellacked lately. A Weak market often presents significant buying opportunities. Use the current downturn to pick up shares in your favorite out of favor stocks.
The following table depicts summary statistics and Monday's performance for the stocks.
Micron Technology Inc. (MU)
Micron is trading well below its consensus estimates and its 52 week high. The company is trading 35% below its 52 week high and 75% potential upside based on the analysts' consensus mean target price of $9.92 for the company. Micron was trading Monday for $6.00, down over 2% for the day.
Fundamentally, Micron has some positives. The company has a forward PE of 26.09. Micron is trading for approximately 76% of book value and 73% of sales. EPS next year is expected to rise by 123%. Stifel Nicolaus reiterated their Buy rating on the stock on June 21st with a $9.50 price target.
Micron's stock has been hammered by weak earnings and lowered guidance. At this point I feel the bad news had been priced into the name. The stock has been in a well-defined downtrend for the last few months. Recently the stock broke out to the upside and pierced the 200 day sma at $7. If the stock can bounce off support at the 50 day sma of $6, I say it may be time to start a position.
Nokia Corporation (NOK)
Nokia is trading well below its consensus estimates and its 52 week high. The company is trading 74% below its 52 week high and has 56% potential upside based on the analysts' consensus mean target price of $3.12 for the company. Nokia was trading Monday for $1.80, down over 2% for the day.
Fundamentally, Nokia has some positives. Nokia is trading for approximately half of book value and only 16% of sales. EPS next year is expected to rise by 100%. Frontier pays a dividend with a 14.03% yield, although the company is currently not profitable which may mean the dividend is in jeopardy.
The stock is down since my last article stating to sell the company. Now, Microsoft (NASDAQ:MSFT) has decided to practically give the Nokia Lumia 900 phone away in an attempt to gain market share. The company dropped the price to a mere $50. The stock is in a downward spiral with no end in sight. Get out of the way of this one. Don't attempt to catch this falling knife.
Sprint Nextel Corp. (S)
Sprint is trading well below its consensus estimates and its 52 week high. The company is trading 37% below its 52 week high and has 14% potential upside based on the analysts' consensus mean target price of $3.95 for the company. Sprint was trading Monday for $3.46, up nearly 4% for the day.
Fundamentally, Sprint has some positives. Sprint is trading for slightly less than book value and only 30% of sales. EPS next year is expected to rise by 28%. Insider ownership is up 45% over the past six months.
I am long Sprint and feel good about the position. The company has had a series of news reports lately that should provide the impetus for the stock to continue moving higher. Most recently, Sprint announced they are partnering with Computer Sciences (NYSE:CSC) to offer a cloud infrastructure solution that will feature Sprint's Complete Collaboration IP communications solution. The service will rely on Sprint's wire line network. The service is expected to launch sometime in the second half of 2012. The stock is a Buy.
SIRIUS XM Radio Inc. (SIRI)
SIRIUS is trading below its consensus estimates and its 52 week high. The company is trading 14% below its 52 week high and has 24% potential upside based on the analysts' consensus mean target price of $2.57 for the company. SIRIUS was trading Monday for $2.07, up almost 1% for the day.
Fundamentally, SIRIUS has some positives. SIRIUS has a forward P/E of 19 and trades for 18 times free cash flow. EPS next year is expected to rise by 37%. Quarter over quarter sales and EPS are up 11% and 22% respectively. Siri's TTM ROE is 80% and the company's net profit margin is 14.75%.
The stock has recently soared over 10% after reporting new subscriber totals and raising its revenue guidance for 2012. The improvement in the company's numbers is directly attributable to stronger U.S. auto sales. Nevertheless, SIRI bears remain unimpressed stating the business model is flawed. The stock has held the $2 mark since the beginning of July. I am considering starting a position prior to earnings on August 7th. The stock is a Buy.
Zynga, Inc. (ZNGA)
Zynga is trading well below its consensus estimates and its 52 week high. The company is trading 70% below its 52 week high and has 126% potential upside based on the analysts' consensus mean target price of $11.42 for the company. Zynga was trading Monday for $4.83, down almost 2% for the day.
Fundamentally, Zynga has few positives. Zynga has a forward P/E of 13.42. EPS next year is expected to rise by 33%. As many of you may know I am not a big fan of Facebook (NASDAQ:FB) and therefore don't have a lot of faith in Zynga. With year over year revenue down Zynga has a hard row to hoe ahead of it. The company needs to reinvigorate its product line and diversify from Facebook if possible. They may make the transition, but I think its dead money for some time to come. Sell Zynga.
These stocks have upcoming catalysts that will move share prices up or down significantly. Three look poised for a rebound while two appear to be falling knives. One thing I've learned over time is to cut my losses and move on if my call was incorrect. As a young investor, I would hold on to my losers saying to myself, "I am not selling until I make my money back." Now, I realize I don't have to make my money back on the same stock. If you are caught in Zynga or Nokia take some time to consider if there is a better opportunity out there. Both these companies seem to have the deck stacked against them.
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 at least 10% at a time on a weekly basis at a minimum to reduce risk and setting a 5% trailing stop loss if you wish to minimize losses even further.
Disclosure: I am long S.