It was a volatile year in 2011, with market swings creating plenty of opportunities, both for profits and losses. Geopolitical events, natural disasters and sovereign debt issues drove markets lower against a backdrop of slow but steady economic growth in the U.S. and solid corporate profits.
2012 promises more volatility, and investors should prepare both their portfolios and their expectations to be ready for the market swings. Three of the four stocks recommended below are volatile stocks which should do well in an up market but could be risky if bears take control in 2012. With high-beta stocks, it is important to use stops to limit losses. The fourth stock, Apple, is a much safer bet, and could move higher even in a down or sideways market.
Yandex (NASDAQ:YNDX) is Russia’s leading search engine with about 64% of the search market. The company has been growing revenues and earnings at better than 50% and growing market share in the motherland. It also has a strong presence in neighboring countries such as Ukraine, Kazakistan, Belarus and Turkey, and has partnered with Seznam, the largest search engine in the Czech Republic.
Yandex also has a number of exciting initiatives underway, including Yandex.Music and Crypta, an ominous-sounding socio-demographic targeting of ads.
Yandex is trading at a very reasonable valuation for a growth company at 11 times revenue and a trailing P/E of 39. With top and bottom line growth rates at better than 50%, we can expect about $0.90 in earnings in 2012. If we apply a P/E multiple of 35, we get a one-year price target of $31.50. With the stock currently trading at about $19.50 per share, that would be a healthy one-year return.
Yandex has no debt and about $650 million in cash and cash equivalents, according to the last earnings report (October 27). With 323 million shares outstanding, that comes to roughly $2 per share in cash.
On a more cautious note, the Russian government has not always been a fan of free speech and the free flow of information, and the current political unrest could exacerbate this problem. Do keep an eye on the situation in Russia but I think a lot of these political risks are already priced into the stock.
If you’ve read my past articles you know that I’m a big fan of Apple (NASDAQ:AAPL), both the company and the stock. I believe that the company is poised for further success in multiple key markets in 2012 and the stock is grossly undervalued. The first quarter earnings report, which is set for January 17, should be a blowout quarter (read my first quarter estimates here) and the rest of 2012 should offer exciting new product releases and big earnings growth.
I believe that Apple will move up past $500 a share in 2012 and if all goes right (iTV, iPhone 5 and iPad 3 all hitting the mark) $600 a share is not out of the question. By the end of 2012 Apple could have about $150 per share in cash and cash equivalents which should not only boost the share price but also allow Apple to continue to dominate the supply chain, ensuring plenty of components at rock bottom prices.
Most analysts continue to miss the mark on Apple, with the consensus earnings estimates for fiscal 2012 at about $34/share. I believe Apple could earn better than $40 a share this year, beginning with a blockbuster December quarter.
The Indian IT consulting firm Infosys (NASDAQ:INFY) is well positioned for continued success in 2012 and beyond. The company offers a huge number of IT services and solutions, too numerous to list here. At a market cap of $29.5 billion it is a large and well established company with many years of successful operations.
The stock traded as high as $77 in 2011 but has fallen to about $52. The chart looks constructive, with a possible double bottom forming. At less than 19 times trailing earnings the stock is reasonably valued and, although growth rates have slowed, it should still show 15% revenue growth in 2012. The PEG ratio is 1.
Infosys also pays a semi-annual dividend that comes to about 1%. The company has zero debt and nearly $4 billion in cash on hand. The company has guided for earnings of $3.02 to $3.06 for the current year (ending March 31, 2012). If we apply the current multiple of 19 we get $57 a share. If Infosys can grow earnings by 15% in fiscal 2012, which I think is likely, earnings would be $3.50. At the same multiple of 19 that would come to $66.50 a share by April 2013, still well off the all time highs but a nice return nonetheless.
Indian stocks have been hit hard over the past year, along with other emerging markets but this has created some buying opportunities. As a large established company Infosys is well positioned to ride out the market storms and win market share from weaker competitors.
Baidu (NASDAQ:BIDU) was the hot stock for much of 2009, 2010 and 2011, but has come back to earth recently, along with the rest of the Chinese Internet names. The stock reached a high of $165 back in the Summer of 2011 but currently trades at around $114. I see this as a buying opportunity.
At a trailing P/E of 44 Baidu is trading well below it’s historical multiple and is relatively cheap, given it’s growth rate. Earnings growth will inevitably slow as the company grows from small cap to large cap but the projected 50% growth rate for 2012 is nothing to sneeze at.
Baidu is firmly entrenched as the leading search engine in the worlds most populous country and is benefiting from a number of key factors. One, Internet penetration continues to increase in China and two, more and more advertising is moving online. Baidu is the company best positioned to take advantage of these mega-trends. The company is also expanding its offering in Japan and has ambitions to become the leading search engine in all of Asia.
Following the success of Google, Baidu has introduced a mobile OS, a web browser and a video site, all of which are showing signs of success. If Baidu can continue its explosive growth in search revenues and find a second hit product, the stock could once again be the darling of the market and reach new all time highs.
2011 was a year of volatility and investors trying to time the market likely got burned. 2012 could be just as chaotic so trade/invest with caution. Buy great companies when the opportunities arise and avoid the hype of “the next great thing.” Good luck to all and Happy New Year!
Disclosure: I am long AAPL, BIDU, YNDX.