A Tale Of 2 Beaten Down Stocks: 1 To Buy, 1 To Avoid

Includes: ATML, NOK
by: Ashraf Eassa

There are some stocks that just can't catch a break - whether they face company-specific headwinds or whether the sector in which the company happens to be in is out of favor, some stocks have been on a downward trend for a while. In this article, I have identified two such stocks, one of which seems poised to reverse its poor fortunes, and the other which I believe should be avoided.

1. Atmel Corporation (NASDAQ:ATML)

Atmel is a semiconductor company that primarily focuses on developing microcontrollers for a wide variety of applications, most notably touch. Unfortunately, the company's sales and earnings per share have been sliding over the last year, with the most recent quarter higlighting the pain that the company's going through. Earnings per share on a non-GAAP basis came in at $0.08, a 69% decline from the year-earlier quarter.

However, I believe that the revenue and EPS trend hit an inflection point in the most recent quarter. While non-Apple (NASDAQ:AAPL) tablets haven't seen the expected traction, I believe that with the introduction of Windows 8 tablets, coupled with the price points of Google's (NASDAQ:GOOG) Android-based tablets coming down, Atmel's touch controller business could see significant upside in future quarters, leading to revenue and earnings growth. This growth, coupled with the company's consistent commitment to stock buybacks (it purchased 6.1M shares at an average price of $7.29 during the most recent quarter), encourages me to be bullish on the company in the long term.

Trading near 52-week lows and with a price-to-earnings ratio of about 15, I believe that Atmel represents a bargain for the value hunter and so I rate this one a buy.

2. Nokia Corporation (NYSE:NOK)

Ah, Nokia. This company primarily develops cell phones (both "regular" phones and "smart" phones). A high flier until the smartphone revolution came along, the stock has destroyed quite a bit of shareholder wealth over the years, with this former $40 per share giant trading at just a hair over $2.

The temptation to buy this stock in the $2 range must be high for a number of investors, but the problem here is that this is still a company with an $8.88B market cap as of the time of writing. With a nearly $6B cash position coupled with a patent portfolio that could potentially be worth billions, some may find this company to be underpriced, or even a "screaming buy". But unfortunately, the company just keeps hemhorraging money, posting operating loss after operating loss. This will burn through the cash reserves and continue to destroy shareholder value.

With a number of extremely strong players in the smartphone market providing differentiated products and building brand momentum going forward, it's hard to see Nokia making a meaningful comeback without some sort of revolutionary product, and selling Windows Phone 7 devices just isn't that.

I would avoid the common stock, and if you're really looking to gamble on the company rebounding significantly within the next year or two, then out of the money 2013 or 2014 calls would be the way I would play this. But as it stands now, I would rate Nokia a sell.

Disclosure: I am long ATML.