3 Stocks to Buy as Risk Aversion Rises Again
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A weekly drop of 2.6% in the equal-weighted Nasdaq 100 in the week of April 15 is creating an even bigger gap between analyst target prices and stock price. Led by a decline in commodity stocks and in banking, the technology sector is following suit.
Take E*TRADE Financial (NASDAQ: ETFC) as an example that supports a negative change in sentiment. E*TRADE is down 17% from a 52-week high, as investors now anticipate trading activity to decline.
E*TRADE reported first quarter earnings of $0.12 per share on revenue of $420 million. The company missed consensus revenue estimates by $18.38 million. DARTs, or daily average revenue trades, were 149,000, dropping 5% from the previous year. Many other metrics were down, too.
Net interest spread dropped to 2.3%, down from 2.38%, while net income dropped 7.3% from the previous quarter to $241 million. The only positive news from E*TRADE was that loss provisions dropped 42% from the previous quarter (including the benefits of a $13 million settlement).
(Data Source: Bloomberg)
Bearishness in the companies began in April, although the downward trend in F5 began in February 2013:
Earlier in April, F5 Networks warned that quarterly results would be weaker. Shares dropped 16.1% after hours on April 4 after the company said that March quarter revenue would be $350.2 million. The consensus estimate was $375.8 million and earnings of $1.23 per share. F5 forecast that the quarter will generate earnings per share of $1.06 - $1.07.
Analysts from Lazard lowered their target price for F5 to $100, while William Blair lowered its rating to “market perform.” F5 has a forward P/E of 20.
SanDisk has a forward P/E of 14. Analysts think there is a 24.8% upside in its shares, as the gap increased after shares dropped 9.4% in the recent week. SanDisk reported quarterly earnings that beat estimates, but investors already bid shares higher ahead of the results.
The company reported that gross margin improved 60 basis points from the previous quarter and 460 basis points from the previous year. The gross margin was helped by NAND flash prices increasing in the quarter. SanDisk said that one-fifth of its sales came from the sale of solid-state drives (SSDs).
SanDisk forecast revenue will be $1.35 billion - $1.4 billion in the current quarter. For 2013, revenue will be higher than consensus, coming in at between $5.6 billion - $5.75 billion. Growth will come in lower than the NAND industry bit growth.
No investor will be able to forecast where the markets are headed, but it is clear that sentiment is shifting to the downside. This is supported by the sharp sell-off in SanDisk and F5, along with declines in online brokerage companies like E*TRADE.
Investors should look for sentiment to reverse before buying SanDisk and F5. Weak hands already reduced their position in these companies, but prices could drop further. This creates a better buying opportunity for investors who missed the run-up that began in December 2012.
Chris Lau has no position in any stocks mentioned. The Motley Fool recommends F5 Networks. The Motley Fool owns shares of F5 Networks. 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!