Volatility and Opportunties in These Tech Stocks

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

2012 was the decent year for Apple (NASDAQ: AAPL), but the sour year for both Nokia (NYSE: NOK) and Dell (NASDAQ: DELL). Over the past 12 months, Apple has gained 18.3%, whereas Nokia and Dell dropped 18% and 22.95%, respectively. However, it seems that Nokia and Dell are coming back. Since the beginning of 2013, both Nokia and Dell gained double digit returns, whereas Apple fell by nearly 8.5%. Among the three, which might be the best stock for investors in 2013?

Nokia - An Old Empire Coming Back?

Back in 2008, Nokia was dominating the smart phone market with superior growth. Nokia accounted for 45.1% of the total handset market in the first quarter 2008, more than the market share of the next three competitors combined. At that time, Apple stayed low, with only around 5.3% market share. However, 4 years later Apple has reached 15% of the market, whereas Nokia was no longer in the list of top 5 smart phone makers. These days, not a lot of people talk about Nokia’s smart phones, even with the new release of Lumia. The Lumia's price even dropped significantly after only several months of introduction.

Nevertheless, Nokia has recently provided surprisingly good preliminary financial information for the fourth quarter of 2012. The firm said that the mobile segment and Lumia portfolio generated better than expected results. The Devices and Services operating margin was expected to be break-even, or hit 2%. Mobile phone revenue would be around €2.5 billion ($3.34 billion), with the total volume of 79.6 million units. There would be 6.6 million Smart Devices sold in the quarter, and 4.4 million of those were Lumia handsets.

Furthermore, Nokia announced that the Nokia Siemens Networks would generate around €4 billion ($5.34 billion) in sales, with the non-IFRS operating margin of 13% - 15%. Right after that, Nokia’s stock price shot up by 22%. Nokia had a quite strong balance sheet. As of September 2012, it booked nearly €7.85 billion ($10.48 billion) in total stockholders’ equity, nearly €8.8 billion ($11.75 billion) in cash and short-term investments, and only €3.8 billion ($5.07 billion) in long-term debt. At the current trading price of $4.62 per share, Nokia is still valued at 70% higher than its book value.

Dell - The Buyout is Possible

Dell has been struggling due to its heavy reliance on PC business, which is currently facing a declining sales trend. In fiscal 2012, Desktop PC’s sales were more than $14.1 billion, 4% lower than the previous fiscal year. Desktop PCs, which was the second-highest category in Dell’s business, accounted for 23% of the total revenue. The largest one belonged to the Mobility business, with $19.1 billion in revenue, representing 31% of the total revenue.

Recently, Dell said that it was talking with Private Equity firms, including TPG Capital and Silver Lake, to be taken private. After the news, investors were bullish about Dell, pushing its shares up by nearly 13%. It was not the first buyout news for Dell. In 2010, Michael Dell, the founder and CEO of the company, revealed his intention to take the company private. Dell also had a good financial foundation. As of October 2010, it had nearly $10.2 billion in equity, nearly $11.3 billion in cash, and $5.3 billion in long-term debt. The company is valued at 2.1x book value and 4.31x EV/EBITDA. 

Apple - Cheap Compared to its Spectacular Growth

Apple has considered to be a darling of the stock market for several years. However, the share price has been sluggish for the last 4 months. Recently, the company cut its iPhone 5’s component orders due to weaker than expected demand. Apple’s market share also dropped from 23% in the fourth quarter of 2011 to 14.6% currently. Many analysts began to be bearish about Apple’s outlook. Citigroup lowered the rating from “buy” to “neutral” on Apple. Nevertheless, Apple still had a lot of cash in its non-leveraged balance sheet. Apple had $118.2 billion in equity, $29.1 billion in cash, and no debt. It was valued at 4.1x book value and around 7.57x EV/EBITDA. The PEG ratio (including growth) is only 0.51x.

Foolish Bottom Line

Investing in technology could be quite dangerous, as things develop quickly and unexpectedly. Dell and Nokia could be considered as opportunistic stocks on their turnaround and buyout events. Apple, on the other hand, could be seen as a value tech stock due to its debt-free balance sheet, tons of cash on hand, and high growth and margins.   

 


hoangquocanh owns Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of 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!

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