Aside From Apple: 3 Stocks That Have Nosedived From Their 52-Week Highs (Part I)
Robby is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If by chance you've overheard five seconds of news this month, or if you’ve glanced at the rolled-up newspaper in your neighbor’s driveway, you already know that Apple’s (NASDAQ: AAPL) stock has recently been taking a beating. The shares have gone from a high of $700 three months ago to around $500 today. A plethora of commentators have chimed in to supply their opinion, and every imaginable perspective has been represented: “Apple’s lost its mojo. Sell your shares now!” – versus – “The stock is selling for 30% off! Buy it now while it’s a great deal!” – versus – “This is all because consumers were upset by Apple Maps. Eventually iPhone users will learn how to use good old fashioned paper maps and forget about it.”
Apple’s stock receives an enormous amount of coverage by the media, and it’s understandable why; the share price doubled between January 2011 and September 2012, quadrupled between August 2009 and September 2011, and septupled between January 2009 and September 2012. The public has been fixated on the company’s stock-boom, and now the obsession is even more palpable as the shares seemingly implode. But the media shouldn’t neglect the other terrific companies out there. Those companies also have interesting ideas, tangible products, and yes! …their share prices have fallen off a cliff, too. I dedicate this article to them.
Poor Performance from a Semiconductor Company
In March, AMD (NYSE: AMD) hit a 52-week high of around $8.25. Since then, shares have slumped nearly 70%, currently trading in the $2.50 range, and analysts don’t expect a rebound any time soon. This precipitous drop of value wasn’t a new phenomenon for AMD; in September of 2000, the stock was at $37, and shed over 80% of its value by September 2002. Investors gradually become more optimistic about the company from 2003-2006. In 2006, the stock had climbed up to $40, right before losing 95% of its value from 2006-2008. You might attribute some of those losses to the financial crisis of 2008, but unlike the rest of the market – which has almost fully recovered to pre-crises levels – AMD shares have remained 80-90% lower than their 2006 prices.
A thorough analysis of AMD’s botched performance would involve a lot more detail than I can provide in this article. The business is flawed and the company has been in a downward spiral for years – there's just too much to say about its inadequacies. For now, I’ll talk about the most recent happenings in the AMD story:
This year, investors started bolting to the exits when the company reported a near 40% drop in second-quarter profit. AMD made it clear that the decline wouldn’t be contained to a single quarter, with the company being vulnerable to the weakening PC market and the business’s increased likelihood of obsolescence. Global economic conditions have contributed to the shaky demand for semiconductors, and the company lowered its guidance because of depressed sales in Europe and China. The behemoth rival Intel (NASDAQ: INTC) has been facing similar challenges, but maintains a strong lead over AMD and – as a much larger ship – is in a better position to weather the storm.
During the past five quarters, each quarter's sales was lower than the preceding one.
Finally, AMD has made negligible efforts to take advantage of the mobile industry’s rapid growth, and has even taken steps backward. AMD sold its handheld business to Qualcomm in the first quarter of 2009, giving Qualcomm the assets and intellectual property that were the foundation of AMD’s handheld business. In a joint press release, the companies said of the deal:
“The acquisition enhances Qualcomm’s multimedia capabilities, allowing Qualcomm to strengthen its leadership position in delivering more advanced products that redefine next-generation mobile user experiences.”
That strategy has certainly been working well for Qualcomm (NASDAQ: QCOM). The company is now the largest chipset maker for smartphones, and its share price is up 20% compared with one year ago.
Although AMD rejected the smartphone market, the company has made clear its intention to develop technology for tablets. The trouble is, AMD has no meaningful presence in the market. Both Intel and AMD stayed on the sidelines as the tablet market exploded, and manufacturers have gravitated toward using chips based on designs from ARM Holdings (NASDAQ: ARMH), which licenses its technology to players like Apple, Nvidia, Samsung, and Qualcomm.
And a comparison of stock performance shows...
If timed correctly, an investment in AMD could be very lucrative. If you had bought the stock in October 2011 and sold it in March 2012, you would’ve made a 70% return in five months. Not bad. But if you hadn’t sold those shares and you still own them (as of December 2012), your current unrealized loss would be 50%. We at The Motley Fool don’t attempt to time the market – unless you're insider trading, it's impossible to know the precise moment to buy or sell. If you believe the plunge from AMD’s 52-week high a few months ago opened up an opportunity to buy the company cheaply, be prepared to hold on for a bumpy ride in the future.
This is Part I of a two-part article. Click here to the second part.
robbyinvest owns shares of Intel. The Motley Fool owns shares of Apple, Intel, and Qualcomm. Motley Fool newsletter services recommend Apple and Intel. 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!