Top 5 Headline Stocks That Are Poised To Move in 2013
Richard is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I’m going to let you in on a little secret – Santa is not real. I say this here only because I know my kids don’t read my articles. Still, that all three major stock indexes posted gains last week is nonetheless being called a “Santa rally.” My pessimism aside, I’ll admit I’ve had my stocking hung with only one request – a fiscal cliff deal. Christmas came and went -- my stocking was left empty.
Despite these concerns, it’s been a great year for the market. With a couple trading sessions remaining, the Dow has gained an impressive 8%, while the Nasdaq and S&P 500 both soared 16% and 14%, respectively. Plus, there are positive economic data that suggests the U.S. economy is on the right track towards recovery. What’s more, corporate earnings are growing.
To a great degree, this has been what has spurred such optimism -- despite the fact that a fiscal cliff deal remain unresolved. With such optimism comes a list of stocks that I continue to believe are poised to move one way or another at the start of the New Year – many of which were in the news recently for various reasons.
Sirius XM (NASDAQ: SIRI) – Price target $4.00 - $5.00
Leading off is Sirius XM. The satellite radio giant announced that Jim Meyer would replace outgoing CEO Mel Karmazin effective immediately. Although the “interim” tag has been added, I believe that there is a great chance that Meyer will land the job on a permanent basis, particularly since Sirius is looking for as smooth a transition as possible.
This news comes on the heels of Sirius having won a favorable ruling against SoundExchange, the organization that collects royalty payments for musicians. It was determined that the royalty fees will increase from 8% this year to 9%. However, the most important aspect of the decision was that the fees will then increase by (only) half a percentage point every year until 2017.
It is remarkable how Sirius has been able to erase so much doubt in a market that remains so uncertain. At current levels, the stock remains a bargain - if for no other reason than the fact that Liberty Media has to buy more to gain majority ownership.
I’m maintaining my near-term $3.30 price target for the February quarter and expect the shares to appreciate north of $4.00 by this time next year. With quarterly adjusted EBITDA and free cash flow growing at impressive rates, there’s also an outside chance that the stock might reach $5.00. From this level, it would represent a gain of 66% - the same performance Sirius has reached this year.
Research In Motion (NASDAQ: BBRY) - Price target $8.00 - $12.00
Last week, I talked about how RIM investors’ resolve continues to be tested. When one looks up the term “frustration” in the dictionary, finding the face of a RIM shareholder should not be too far away. Just when RIM was starting to show signs of life, the stock plummeted almost 23% from a high of $14.12 to $10.91 following the company’s third quarter earnings report.
However, relative to expectations RIM’s earnings were pretty good. The company reported a net loss of 22 cents per share on revenue of $2.7 billion, beating Street revenue estimate of $2.6 billion. Likewise, RIM’s loss of 22 cents was narrower than estimates of 35 cents. This is certainly encouraging despite the fact that these numbers had previously been revised lower. Nonetheless, a beat is a beat.
Too, RIM has been growing cash at an impressive rate. The company has now amassed close to $3 billion on the books – helped by an additional $600 million earned during the quarter, with $950 million coming from operations. So RIM is doing a decent job managing costs and inching towards profitability. Unfortunately, it went downhill from there.
Management hinted at changes to its subscription service but was unable to explain to analysts how these adjustments were going to impact its revenues. This created a cloud of doubt that proved too much to bear. The good news is I don’t expect the stock to make a new 52-week low, but shares will be range-bound and BB10 may not bring in the new payday that investors expect.
Oracle (NYSE: ORCL) - Price target $40.00
Database giant Oracle’s second quarter earnings results made the case for why Oracle is not only one of the best tech companies on the market, but why there might not be another company that is more adequately prepared to dominate the cloud. Investors better wake up and appreciate the value that still remains in the shares at these levels. It might be too late.
For the period ended Nov. 30, Oracle enjoyed strong growth in its Internet-based software, which competes head-on with Salesforce.com in that all important Software as a Service (SaaS) business. But it gets better: Oracle expects to generate more than $1 billion in revenue this year.
Impressively, the company reported an 18% year-over-year increase in net income, reaching $2.6 billion, or 53 cents per share. Oracle said profits actually arrived at 64 cents per share when excluding charges related to acquisitions and other costs -- enough to beat analysts’ estimates of 61 cents per share.
Likewise, revenue grew 3% to $9.1 billion, exceeding Street estimates by $900 million. However, the most remarkable aspect of the report was the 17% surge year-over-year in the company’s software licenses and subscriptions business. This was good enough to exceed management’s most bullish projections three months ago.
On the basis of the company’s Q3 projections, which includes a high range of $0.68 per share on revues of $9.5 million, the shares still look undervalued by at least 20%. Oracle’s strong cash position, deep market penetration and innovative strategies will continue to make the stock one of the bright spots in 2013 with $40 per share being a possibility.
Cisco Systems (NASDAQ: CSCO) - Price target $25.00 - $30.00
It’s hard to recognize Cisco these days as the company continues to spend billions in cash trying to reinvent itself. CEO John Chambers recently laid out Cisco’s growth plan outside of the traditional hardware, which includes routers and switches to more of a software platform. But this won't be an easy task.
The company realized 12% year-over-year services growth in its fiscal 2013 Q1 earnings results, which supports its decision to fully migrate into that business. What’s more, Cisco understands that its current lead in routing and switching won’t mean anything once customers start transition into software-based network solutions. And evidence suggests that is exactly what is beginning to happen.
The change will take place over the next five years as Cisco's software revenue is expected to double from $6 billion to $12 billion. During that span, the company expects software services to comprise of 1/4 of its annual revenue, which is expected to then grow at an annual rate of 6%. Will it work? So far analysts seem to believe that it will – at the least the market is willing to listen with less pessimism.
The company deserves credit for this decision. As to whether or not Cisco is overspending, well, it’s too early to say. Nevertheless, it's clear that Cisco wants to return value to shareholders and at $20 per share, it is hard to find better value today than Cisco. With reasonable growth assumptions, the stock should reach $25 to $30 at some point in 2013.
Intel (NASDAQ: INTC)- Price target $25.00
For all of the struggles Intel has had over the past couple of years and being left “outside” of the mobile devices market, there is still a bullish case to be made for why the stock should be owned here at $20. Even though the company still appears too slow in its response to mobile, Intel has just bought itself some more time.
Last week, in a filing, the company announced that it was going to engage in a stock buyback program after selling $6 billion in bonds. In other words, despite the market’s growing pessimism about Intel’s prospects, the company sees value in the shares – so too should investors.
The company pulled this off last year when the stock also traded at $20. Shares then soared 45% in the 6 months that followed. I expect the same will happen this time. Plus, there continues to be rumblings that Apple might adopt Intel in its devices. How true these rumors prove to be remains to be seen. Nonetheless, it is certainly an encouraging sign that the company believes in its business.
Too, from the standpoint of very limited downside risk, the stock has to be rated a buy at current levels. Why not? Granted, this does not mean that Intel is out of the woods from competitive pressures. But the stock buyback does present some stability and assures investors that there is value yet to be realized while Intel gets its house in order.
Although this list is far from complete, there are many compelling reasons to watch the activity and the news surrounding these companies. As part of a growth and value portfolio, it is hard to find better names presenting a combination of market positioning, safety, growth potential while offering decent yields in INTC, CSCO and ORCL.
If there is one stock to really keep an eye on, it’s SIRI. Although $5 per share is a stretch, should it be attained, it will qualify SIRI for additional purchases by funds and institutions that are prevented from buying sub-$5 equities. RIMM on the other hand, can go in either direction. As much as the prospect of BB10 remains positive, the company has to now figure out a way to restore the market’s trust about its biggest revenue source, which is now in limbo. Stay tuned.
rsaintvilus is long AAPL and has no positions in the other stocks mentioned above. The Motley Fool owns shares of Intel and Oracle. Motley Fool newsletter services recommend Cisco Systems 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!