5 Stocks and 5 Questions for 2013
Richard is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As the curtain slowly drops on 2012, it seems 2013 just can’t come fast enough. What seemed like smart decisions for most of the year suddenly turned into brutal mistakes over the past three months, erasing some meaningful gains. This has left investors wondering what the heck just happened.
This was no doubt a schizophrenic year in the market. Investors saw things that weren’t really there such as Facebook’s hype-filled IPO. Conversely, there were several missed opportunities such as Bank of America which doubled from its 2011 close.
However, there’s no point in crying over spilled milk now. There’ll be plenty of opportunities for that I’m sure in the New Year. The goal however, is to limit the number of occasions. So without further ado, going into 2013, here are five stocks with some very important questions to answer -- and their futures hanging in the balance.
Hewlett-Packard (NYSE: HPQ)
Can Meg Whitman survive the year as CEO?
It’s hard to quantify the tragedy that HP has become. Remarkably, each time the market has asked “how bad can things get?” the company has been able to provide an answer, including (most recently) the embarrassing $8 billion write-off for an ill-timed acquisition of Autonomy.
Unfortunately for HP, though the New Year often brings new optimism, it still appears that the company has yet to hit bottom.
For instance, can anyone really see hope for HP’s PC business in a market now dominated by mobile devices? The PC business posted a 14% decline in HP’s most recent quarter. The company is also proving to be no threat to Cisco in areas such as networking, and HP hasn’t fared much better in its storage business, which dropped 13% year-over-year. In other words, the company has very little chance to overtake market leaders EMC and NetApp. So where is growth going to come from?
Meg Whitman is a good manager, and I appreciate that HP’s turnaround is going to take more time than expected. Although she inherited quite a bit of this mess, it should escape no one that she was on the board and approved the deal for Autonomy. That aside, HP’s stock looks incredibly cheap. But will Meg Whitman survive the time it takes to realize any value that is left?
Research in Motion (NASDAQ: BBRY)
Will BB10 restore RIM to prominence?
Unlike HP, RIM has already reached bottom. This means regardless of what metric you use and what your expectations may be, the company is now moving in the right direction. The question is, how far can it go? Too, will BB10 provide enough momentum to reach these ambitions?
Despite the punishment RIM’s stock absorbed -- plummeting over 20% on its Q3 earnings results -- the quarter was actually pretty darn impressive, at least relative to expectations. Not only did the company beat on both its top and bottom lines, RIM also showed that it can grow cash at an impressive rate, amassing close to $3 billion, including $950 million from operations.
However, these accomplishments (as meaningful as they may be) won’t be enough to beat Apple or win back consumers. That task rests on the potential of BB10. Unfortunately, "make or break” scenarios just never turn out as expected.
I want to believe that RIM has enough room to mount a recovery, but it’s an uphill battle any way you look at it. The company deserves credit for proving that there can be life after “near death.” But it’s more than just Apple it has to contend with. There is Google, Microsoft, Samsung and Nokia. I suppose another question for RIM could have been -- can it survive 2013 without being acquired? Keep an eye on Lenovo here.
Microsoft (NASDAQ: MSFT)
Will failures of Windows 8 and Surface force Ballmer out?
I once said that Microsoft does not have to be Apple to be good. I’m now having second thoughts about that. According to NPD Group, a firm that tracks sales in the United States, consumers have not been lining up for Windows 8 as they have during Apple product launches. In fact, it’s been the complete opposite.
The report states that sales have fallen by as much as 21% year-over-year. Sales of desktop machines have dropped 9%, while laptop sales have fallen by 24%. It seems what was meant to invigorate the PC industry is sucking the very life out of it. Disappointingly, the company’s Surface tablet hasn’t fared any better – despite a robust mobile market that is yet to peak.
It’s sacrilegious to ask this, but can Steve Ballmer survive? The guy has been untouchable – much to the dismay of Wall Street. We can sit here and chronicle his past failures, but it won’t help. But Microsoft may not have a choice this time, not when revenues in the company’s bread and butter Windows division dropped 33% in the most recent quarter.
Too, the company missed both top and bottom line estimates of $18.11 billion and $0.65 per share respectively. The drop of 8% in revenue ended its streak of revenue growth, which spanned four quarters, while EPS also declined by 22%. Remarkably, Wall Street didn’t care. Why? Because not much was expected.
Is this what Microsoft has become? Ballmer has had more than a decade to right this ship and I think it’s time the company gives someone else a chance. I hear Scott Fortstall is available.
Intel (NASDAQ: INTC)
Can Intel gain enough traction in mobile?
I’ve spent most of this year coming to Intel’s defense. Call it misguided – I’ve been guilty. The company dropped the ball. Not only did it underestimate the swift decline of the PC industry, but the mistake was compounded by being slow to respond the smartphone and tablet movement.
Understandably, Wall Street has dismissed Intel in favor of sexier names such as Qualcomm and ARM Holdings. But there’s value left in the shares and there are rumors that Apple is considering using Intel chips in several of its devices, including iPads – albeit unconfirmed.
Also, according to TechCrunch, investors should expect LTE-compatible chips from Intel sometime in 2013. These will allow the company to power more smartphones and seek more growth opportunities in tablets. But it remains to be seen how well received these chips will be. Too, I’m not so sure that these new chips will present an immediate threat to Nvidia and Broadcom – much less to Qualcomm and ARM Holdings. On the other hand, it’s a response.
In the meantime, Intel’s stock is very appealing at these levels – especially since the company just announced a pretty significant buyback. Buying the shares now can yield 25% in premiums in pretty short order. This should be enough to keep investors patient while the company sort out its mobile strategy. On this basis, there are actually now two good reasons to own the stock.
Pandora (NYSE: P)
Will the Fat Lady sing the blues?
For Pandora, the good news is the company’s fundamentals are solid. Its recent performances suggest that the company can operate successfully for several more years. For instance, in its most recent report, net profits more than tripled to $2 million – helped by a combination of growing revenues and sound cost management.
When excluding stock-based compensation, adjusted earnings arrived at 5 cents per share – beating street estimates by 4 cents. Likewise, revenues rose 60% to $120 million – also beating street expectations. So essentially, it seems the company is operating on all cylinders, despite an already tough advertising environment.
The bad news is that Apple is rumored to have an interest in the music streaming business. Although Apple has yet to confirm this, it makes too much sense for it not to happen. If this proves true (and I think it is), I don’t see how Pandora can survive – at least not on its own.
What’s more, Microsoft's plans to launch a rival service will only add increased pressure on Pandora to find a new landing spot as an acquisition candidate. I’m willing to make a prediction -- Google or Microsoft will make a play for Pandora. And I’m willing to include Facebook as an honorable mention.
There are many more questions that I think are worth asking. But these are 5 major ones that have been on the minds of investors going into 2013. It will be interesting to see how these are answered or if they remain questions for any portions of the year.
rsaintvilus is long AAPL and has no positions in the stocks mentioned above. The Motley Fool owns shares of Intel and Microsoft. Motley Fool newsletter services recommend Intel and Microsoft. 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!