Four Laggards that "Could" Rally in 2013 Because of Valuation

Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

In the last few days, and in some cases the last few weeks, we have seen a number of stocks outperform the broader market by a significant margin. In most cases this would be normal; however, these are stocks that have typically lead the market in losses, in recent years. Therefore, let’s look at such stocks, determine why they’re moving, and if it can continue.

<table> <tbody> <tr> <td> <p>Company</p> </td> <td> <p>One-Month Performance</p> </td> <td> <p>One-Year Performance</p> </td> <td> <p>Five-Year Performance</p> </td> </tr> <tr> <td> <p><strong>Hewlett-Packard <span class="ticker" data-id="203900">(NYSE: <a href="http://caps.fool.com/Ticker/HPQ.aspx">HPQ</a>)</span></strong></p> </td> <td> <p>19.66%</p> </td> <td> <p>(42.15%)</p> </td> <td> <p>(70.02%)</p> </td> </tr> <tr> <td> <p><strong>Dell <span class="ticker" data-id="203298">(NASDAQ: <a href="http://caps.fool.com/Ticker/DELL.aspx">DELL</a>)</span></strong></p> </td> <td> <p>11.55%</p> </td> <td> <p>(25.06%)</p> </td> <td> <p>(55.02%)</p> </td> </tr> <tr> <td> <p><strong>First Solar <span class="ticker" data-id="209670">(NASDAQ: <a href="http://caps.fool.com/Ticker/FSLR.aspx">FSLR</a>)</span></strong></p> </td> <td> <p>24.87%</p> </td> <td> <p>(4.05%)</p> </td> <td> <p>(87.09%)</p> </td> </tr> <tr> <td> <p><strong>Nokia <span class="ticker" data-id="204739">(NYSE: <a href="http://caps.fool.com/Ticker/NOK.aspx">NOK</a>)</span></strong></p> </td> <td> <p>27.3%</p> </td> <td> <p>(19.26%)</p> </td> <td> <p>(89.29%)</p> </td> </tr> </tbody> </table>
  • Hewlett-Packard has near collapsed since the emergence of Apple and the craze towards tablets. The company has seen significant fundamental decline but with recent insider and high profile institutional buys, such as Carl Icahn, some believe that 2013 will be different. Furthermore, rumors of acquisitions have begun to surround the company. However, although an acquisition is possible, this is a company that is considerably cheap and has the potential to return gains on its fundamentals alone. It’s currently trading with operating cash flow of more than $10 billion and has a forward P/E ratio of just 4.39. Therefore, it might very well see a recovery in 2013 due to such harsh selling over the last few years.
  • Dell is a smaller version of Hewlett-Packard, and although its loss hasn’t been as severe, its value is just as apparent. The company has managed to maintain profitability despite the overwhelming issues regarding demand. It currently trades with a P/E ratio of 7.57 and a forward ratio of 6.66. The company is trading with a price/sales of 0.32, therefore its value compared to fundamentals should not be a question. In terms of upside, the company has performed strongly in anticipation of the Windows 8 and the fact that weak PC sales are baked into the stock there appears to be little risk. I believe that Dell is a much safer investment compared to Hewlett-Packard because of its balance sheet, but investors should still expect volatility.
  • First Solar has been a magical stock ever since the end of July, following a surprisingly strong quarter. The company’s fundamentals remain volatile. However recent news regarding Chinese demand, contract development, and a recent acquisition by Berkshire Hathaway has pushed shares of the company higher. This is a stock that I purchased back in August and have held ever since. I think it still presents upside and remains undervalued as a good long-term investment.
  • Nokia has rallied in anticipation of both its Lumia 920 and Windows phone releases. The initial data surrounding sales have been strong, however there are questions regarding supply. The good news is that most indicators suggest that Chinese demand has been high. Much like the others on this list, Nokia trades with a price/sales of just 0.37 and maintains a strong cash position. And although I’m not sold on its re-emergence, I must acknowledge that because of its price that this is a stock that could rise.

The companies on this list fall into the category of a high risk/high reward investment. Each are so cheap that it would not require a large investment to return large gains, if in fact you decide that any of these stocks fit into your portfolio. Personally, I would not invest a large position in any of these companies. However, because of their valuation and the optimism surrounding each stock, I  wouldn’t be surprised to look back next year and see that one, or more, of these stocks traded with massive gains in 2013.


BrianNichols is long FSLR. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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