Taking a view and a position on a security that is contrary to consensus is required for investors who wish to generate positive returns consistently. Being both contrarian and right at the right time requires patience and conviction. An investor who has true "alpha" needs:
- to have a performance spans over many years
- to be able to survive market panics, and
- to outperform the index
The 200-point drop in the Dow Jones Industrial Average on March 6, represents the first drop over 100 in 45 days. This might be a start of a market panic, or it could be a return to higher volatility. This necessitates a review of the performance of 5 recent buy and sell calls for technology stocks that were contrarian. For the short-term, three calls were right and two are wrong. Investors with a longer-term investment time horizon will understand that the stock market behaves like a voting machine. In the long term, it acts like a weighing machine.
1. Nokia Corporation (NYSE:NOK) - Sell
The "sell" call on Nokia was right - for now.
Nokia shares remain range-bound between $5 and $6.50, closing recently at $4.96. The company's plan to release Windows Phone 7 (WP7) in North America is on-track. Nokia addressed the value-conscious consumer by releasing a Lumia 610-series. Similar to the contact management system in Research in Motion's (RIM) Playbook tablet, Nokia's phone also unifies contacts from across different social networking sites and emails. The budget device will be released in the second quarter and will cost $254. Nokia also added a 41MP camera on its 808 PureView device. While this is impressive, the phone runs on the older Symbian operating system.
Nokia is still a company to avoid. S&P recently downgraded the company's debt to BBB- from BBB. The ratings company also gave a negative outlook, warning that it would downgrade Nokia again if cash declined to less than $2.6B (2B euros).
In an ongoing effort to reduce costs, Nokia cut 3,500 jobs in its Nokia Siemens Networks division
2. Hewlett Packard (NYSE:HPQ) - Buy
The "buy" call is so far a wrong call. HP was a stock to sell last year, but was rated a buy again in late-February. HP shares peaked at $30 in 2012, but are off substantially, closing recently at $24.17.
Investors with a longer-term time horizon are pinning their hopes on stronger PC and tablet sales after Windows 8 is released. As the manufacturing of hard drives resumes, it should also help revive its PSG business. HP's cost reductions (such as recent layoffs at its WebOS unit), improved margins in its printing business, and focus on the Services business will help HP shares in the longer term.
3. OmniVision Technologies Inc. (NASDAQ:OVTI) - Buy
The "buy" call for OmniVision looks to be correct. Shares are now up 69.06% from its 52-week low, closing at $17.16. OmniVision rose 8.4% on March 6, after analysts speculated that Apple's (NASDAQ:AAPL) iPad 3 will use OmniVision's image sensor. Even if the rumors are untrue, the company is moving in the right direction. It is shifting unit sales from 2MP (22% of total shipments in the last quarter) to 5MP and 8MP. OmniVision also offers investors exposure to the still-growing notebook market. The company believes it has a strong competitive position for 720p HD sensors for computers.
4. Shutterfly (NASDAQ:SFLY) - Sell
The "sell" call for Shutterfly was wrong. Shares are up 28.30% year to date, closing at $29.20. In last quarter, the company reported a 54% increase in revenue in 2011 over the previous year. The company successfully integrated its acquisition of "Tiny Prints." The acquisition helped improve the company's margins of 17.7%.
Shutterfly purchased Eastman Kodak's online services business for just $23.8M. To put the purchase in perspective, Kodak Gallery had over 75M users. This values each user at just $0.32. Considering that Shutterfly is like a social media play, this purchase is far lower than the approximately $1.20 per user valuation on Facebook.
5. NVIDIA Corporation (NASDAQ:NVDA) - Buy
The "buy" call for NVIDIA is barely a right one. NVIDIA began trading down since mid-February, closing at $14.72. Investors should take note of the competitive pressure escalating from AMD. AMD's Radeon HD 7000-series is competitively priced, at $249 and $349 for the 7850 and 7870 model, respectively. These models compete with NVIDIA's GTX 570 and 560Ti. AMD's graphics processor for the PC uses less energy than NVIDIA chips and delivers more FPS (frames per second)-per-dollar.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SFLY over the next 72 hours.