Investors have been worried about what the future holds for the market for months now. While the numbers suggest that the likelihood of a double-dip recession has decreased, some investors remain confident that we have found a bottom for the year. Here, I analyze the stocks that are most likely to be validated by a contrarian viewpoint. By going against the grain, I expect to make money in 2013.
Intel Corp (NASDAQ:INTC) - This tech super power is trading around $23 with its market capitalization at $115 billion. Its dividend is in line with the semiconductor industry average, yielding $0.84 or 3.60%. Its price to earnings ratio, 9.8, is near the industry median of 11. Still, this makes Intel out to be a better deal than tech giants that compete for INTC investment dollars, such as Oracle Corp.
(NYSE:ORCL) and Cisco Systems, Inc. (NASDAQ:CSCO), with respective P/E ratios of 17 and 14. While Intel has been able to turn above-average profits, its debt-to-equity, at 0.04, further points to its financial strength. Intel dwarfs the S&P’s performance in the past 52 weeks, increasing 15.41%. Earnings momentum has been positive the past five quarters, jumping from $1.99 to $2.35.
The stock recently tested its yearly low of $18.75. Over this time, the stock has shown promising rallies followed by substantial sell-offs. From mid-April into May, INTC jumped 17.2%, only to retrace completely back just a couple months later. With the stock still retracing upward right now, it seems as though now may be the time to jump in. Warren Buffett just announced he's buying too. I love Intel’s fundamentals and I’m expecting the stock to make a jump to its previous high in the next few months.
Sirius XM Radio Inc. (NASDAQ:SIRI) – This satellite radio provider is trading around $1.74 with a market capitalization of $6.5 billion. Sirius appears a bit overvalued with a price to earnings ratio of 43, more than doubling its industry average of 17. While operating profit margin, at 21%, nearly matches the average of its peers, net profit margin falls below its benchmark, at 8.13%. Sirius has one of the highest returns on equity in its industry, at 70.40%. Debt levels are still a worry, though, with a high debt to equity ratio of 6.12. Moreover, the quick ratio demonstrates Sirius’ inability to cover short-term needs at 0.33.
Sirius’ chart shows that it has tried to break its 52-week high of $2.44 twice since May. This last attempt, however, ended with a large sell-off, sending the stock back to its previous support at $1.69. Now, Sirius just passed through the 61.8% retracement mark of its yearly Fibonacci. The 200-day and 50-day moving averages are indicating a potential death cross, which worries technical analysts. Nonetheless, the balance of power has been positive for the past three weeks, indicating investors like Sirius at this price.
While the company has seen considerable subscriber growth that appears to be leveling off around 20 million self-paying users, I think SIRI's days of profitability still lie ahead of it. Specifically, this could be a "must-have" technology as traditional radio outlets scale back programming in light of reduced advertising revenues. As the commercial radio outlets attempt to increase advertising time, but, at the same time, dilute the quality of content, more users will turn to Sirius for their programming. While my theory may take time to bear out, I believe this ultimately is SIRI's endgame. However, for the moment, I’m going to wait on this stock, as its fundamentals improve in 2013.
Cisco Systems, Inc (CSCO) – Cisco is trading around $17.50 with a market cap of $100 billion at last check. The stock is currently yielding $0.24 (1.30%) in dividends. Its price to earnings ratio is 16, making it undervalued compared to the industry average of 17.70. Operating profit margin comes in far above competitors at 17.76%.
Additionally, Cisco has shown its ability to turn profit with its net profit of 15.02% beating the average at -13.52%. Further, debt levels have been managed well with a debt to equity ratio of 0.36. Compared to the S&P 500 (NYSEARCA:SPY), the price movement of this stock is dismal at -10%. Cisco has demonstrated a lasting downtrend dating back since April of 2010, where the stock retraced all the way back to the bottom of the financial crisis sell-off.
With the 52-week low at $13.30 and the high at $24.60, Cisco still isn’t far off from this bottom. Now, what needs to decided right now is whether or not this company is in the same trouble it was in back in 2009, considering both macroeconomic factors and the company itself. As far as Cisco itself, the answer lies in the financials—net equity has increased 19.2% and net cash flow flew 82.9% since the second quarter 10-K of 2009. These improvements have translated to almost a 6% jump in its bottom line.
Considering both the support in the high teens and the company’s noteworthy financials, this stock is ready to rally. If have any amount of faith in the market, you should be long Cisco into 2013.
Hewlett Packard Company (NYSE:HPQ) – HPQ is trading around $25 with its market capitalization at $50 billion. The price to earnings is among the lowest in the industry at 5.96. The stock is currently dishing out $0.48 (2.11%) per share in dividends. Profitability has not a strong point compared to its industry, with the operating margin at 10.15% and net margin at 7.30%, both falling well short of its competitors.
Net operating cash flow has shown a slight drop of 2.01% compared year over year. HPQ has had earnings per share improve by 24.0% in the most recent quarter compared to a year ago, and that trend is likely to continue. Last fiscal year showed an increase in its bottom line from $3.14 to $3.69 in the prior year. Market estimates are projecting a 24.0% jump to $4.85 for this year.
Similar to Cisco, HPQ has plunged since the beginning of the year and is now trading in the range of its March 2009 bottom. The most recent drop was due to its announcement to discontinue its laptop operations, which sent the stock down tremendously. Both the 50 and 200-day moving averages are negative which illustrates a bearish trend. However, with Meg Whitman now at the helm and her first quarterly earnings beat under her belt, we have faith HPQ could be a great turnaround story going into 2012.
Molycorp, Inc. (MCP) – This mining company, which focuses on North American large rare earth deposits, has a market capitalization of $2.76 billion and last traded around $27. The price to earnings ratio has the stock strongly overvalued, at around 29 , compared to the metal mining industry average of 8.63. Profitability isn’t very attractive compared to its peers, with operating and net profit margin below average at 16.56% and 15.89%, respectively.
Still, these numbers are an improvement, with revenue growing at 150% in the most recent quarter. Year over year, analysts expected 65 cents (following last year's -14 cents) until Piper added an 84 cent earnings estimate expectation. As a result, MCP's 67 cent earnings announced November 10th fell short of revised expectations by 3 cents. I’m very impressed with Molycorp’s short-term financial strength and positive earnings , with a very solid quick ratio of around 6.7. Also, its financials show that management has been able to minimize debt levels with a debt to equity of 0.25.
Right now, MCP has fallen over 40% since mid-August. This drop stems directly from the commodity prices for the metals that Molycorp is mining. Both the 200 and 50-day moving averages are bearish, which makes sense with the recent dip in metal prices. Since trading outside the bottom Bollinger for several days, MCP barely rallied off of that mark. I’m anticipating MCP to create support in this price range; I believe it will stagnate for the months to come but should continue growth in 2012. I’m holding Molycorp.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.