4 Trades to Make in 2013
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Does 2013 hold a major market rally, or a steep market selloff? Whether the markets shoot up or drop down, here are four trades I will be watching for in 2013.
Go long Apple
Apple (NASDAQ: AAPL) topped $700, then fell back to earth. Right now Apple sits at $512.04. At this price, Apple yields a 2.1% dividend, trades at 11.6 times earnings (ttm) and trades at just 8.9 times next year’s earnings. For a tech company on the cutting edge of innovation, these ratios are low.
The reason they are low is because Apple makes its new fortunes by creating new innovations, which are less predictable for investors. Currently Apple is investing in search engine and voice assistant Siri and is looking for a better data source for the program. Apple is also eyeing a more significant stake in the television arena.
If Apple falls a little further, I am interested. Apple at $500 is nice, but I would really like to enter at $450, $425, and $400, perhaps by “layering” into a position.
Go short Research in Motion
I just wrote that “Blackberry 10 is Doomed.” Research in Motion’s (NASDAQ: BBRY) stock ran up some 128.5% in anticipation of the new Blackberry 10 and its two new phones. The new phones are very nice, and the specs are incredible. I wrote an article explaining how RIM’s acquisition of The Astonishing Tribe, a Swedish design shop, just saved the stock price. I don’t have qualms with the new phones or their designs – only with RIM’s stock price.
The problem is that no one wants to be seen holding a Blackberry. Here is one shortened comment from my previous article:
Article is dead on about enterprises (large companies)...they are dropping BB as fast as possible, since none of their employees want them, anymore. The days of corp standard devices are long gone. Anyone attending any IT conference in 2012 would be very hard pressed to find a BB. RIM would have to produce a major consumer hit to regain relevance...not going to happen...the enterprise trend is away from BB, leaving RIMM in a very difficult position.
In addition to RIM’s troubles, it also has to battle Nokia’s (NYSE: NOK) turnaround. Nokia fell from its market leading position and had to redesign itself. Nokia is now offering incredible Lumia phones, running the new Windows 8 operating system, for just $99 with a two-year contract. Also, Nokia is offering the phones through major U.S. carriers Verizon (NYSE: VZ), AT&T, and T-Mobile.
The difference between Nokia and RIM is that last quarter Nokia had meaningful worldwide market share of new shipments at 19.2% versus RIM’s 2.1%, according to Gartner research. The difference is large – Nokia sold 73 million more phones to end users in Q3 than RIM.
Frankly, I don’t think I’m brave enough to take a stock position with RIM. The stock is too volatile and the capital outlay too large. If I did make a trade, I would probably sell a bearish credit spread instead.
Watch for Hewlett-Packard’s bottom
Hewlett-Packard’s (NYSE: HPQ) bad acquisitions are coming back to haunt the company. For example, HP took an $8.8 billion write down of past acquisition Autonomy, which once posted revenues of $1 billion. At the time of the acquisition, HP paid a 58% premium over the share price.
To turn the company around, CEO Meg Whitman began focusing on PCs and printers, the company’s core competencies. Refocusing is a great strategy – but the move will take time because these businesses typically have lower margins.
In addition, HP has a -10.5% profit margin (ttm, according to Yahoo! Finance) and current debt of $28.4 billion, versus $11.3 billion in cash. Whitman said in a recent conference call that 2013 will be difficult, but to look for long-term growth by 2015.
How bad have things gotten for HP? In a recent filing, HP released an interesting chart. It showed that $100 invested in HP shares in 2007 would have shrunk to $24.81 – a 75% loss (assuming dividends were reinvested).
In my opinion, this makes 2013 a good time to look for a bottom to HP. I’m willing to wait for a purchase price below the all-time low for the stock, which is $11.35.
Go long Verizon
In late 2011 the market took a nose dive, and I eyed Verizon. The high dividend and locked-in customer base gave stability to the stock, and Verizon stayed in the mid-$30s, despite a broad market selloff.
I’m again on the lookout to scoop up Verizon shares if markets decline in 2013. First, Verizon pays a 4.7% dividend, which would increase if the stock price shrunk. Second, Verizon added 1.5 million (net) subscribers last quarter, 10 times more than AT&T. Third, Verizon has 90.4 million post-paid subscribers and a churn rate of just .91%.
In conclusion, 2013 will be a great time to invest. I will be watching for a broad stock market decline so that I can accumulate positions in both strong companies and companies hoping for turnarounds. If the broad markets decline, I will be on the lookout for bargain deals.
ChrisMarasco has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. 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!