3 Stocks Making 3 News Year’s Resolutions
Richard is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
“I promise it will be different this time.”
Whenever I hear these words I have an inclination to run, whether in my personal life or as an investor – it makes no difference. But nevertheless, with each new year comes new resolutions. And although statistics show that very few of these are kept, investors can still make a lot of money if only a handful of companies keep their promises. Here are a few names to consider.
Marvell Technology (NASDAQ: MRVL)
It’s hard to imagine that Marvell’s suffering can continue far into 2013. At the very least, the new year can’t be any worst. The stock has dropped 50% in 2012. Aside from weakness in the PC market, Marvell has been plagued by litigation, including being forced to pay $1.17 billion to Carnegie Mellon University in a patent infringement case pertaining to data storage.
It will be different in 2013 – how?
That question will depend on how drastic the decline in PC demand proves to be. It does not bode well that analysts are suggesting that demand might drop from 9% in Q1 to the “teens” by the second half of 2013. Also, the long-term outlook is not great. Although Marvell has meaningful share in hard drives, which includes 100% of the controllers market, that market has flatlined.
Unfortunately, in the solid state drives (SSDs) business, where there is still ample room for growth, Marvell will find margin increased pressure from the likes of Micron and Intel. Likewise, Marvell may face increased headwinds in the wireless market and see more of its TD-CDMA market share erode from new products from Qualcomm.
Despite all of this, I still find the stock too cheap to ignore at current levels. There are a lot of things that need to go right for this stock to work, but too much has gone wrong to assume that things can get any worse. If Marvell only reaches the midpoint of its 52-week high in 2013, this would still represent a 25% gain. That’s a risk worth taking.
Netflix (NASDAQ: NFLX)
It’s hard to imagine just a little over a year ago shares of Netflix traded north of $300. Those days are over and likely to never return. Today Netflix is an $89 stock. Right or wrong doesn’t matter. Though arguments can be made that the valuation at $300 was inflated, one can also say that Netflix has recently hit bottom as evidenced by the stock being up 70% from its 52-week low.
Now, although I’m willing to applaud Netflix for executing a series of moves that suggests the company is “turning the corner,” concerns about its business still linger. Netflix’s challenge is to completely erase the bear arguments that have damaged its reputation over the past year.
It will be different in 2013 – how?
I like Netflix, I just don’t care for the losses the company accumulates each quarter. Despite the fact that the company has been making the right decisions, its aggressiveness and the “grow at all cost” mentality will end up hurting the company in ways it doesn’t expect.
On the other hand, I appreciate that its future hinges on these series of moves, including international expansion. But posting a 90% drop in net income makes the stock very unattractive. However, working in its favor is its sizable lead against the competition, although this continues to be a popular bear argument.
Likewise, the company’s recent content sharing deal with Disney should help drive its growth momentum, although the deal won’t take effect for a couple of years. In the meantime, the company has proven that it can grow – gaining 2 million new streaming members in the recent quarter, which has now brought its worldwide total to 29 million.
This is in addition to U.S. subscribers, which grew to over 25 million – up more than 20% year-over-year. Likewise, it is certainly encouraging that 700,000 new international subscribers were added during the quarter – helping the company reach a total of 4.3 million.
The company is doing well in terms of growth. But profits will soon matter. Nonetheless, the stock is worth the gamble at current levels. One has to believe $100 per share should be an easy target in 2013. This would represent a 12% gain. This year Netflix gained 30%.
Dell (NASDAQ: DELL)
Dell has lost over 30% on the year. The good news is the company is not HP and things could be much worse. The bad news is that PCs are dying and the company is not Apple (NASDAQ: AAPL), as sales of Apple devices continue to rise with the company now having reached 53% market share.
Another report suggests that Windows 8 sales are not going to be the PC catalysts that it was billed to be. This means that Dell is in the wrong business. Though the company has been spending billions in M&A activity to remove its dependency on its dying PC business, Wall Street has not cared. Dell has been doing these deals for the past several years and the company has yet to show meaningful signs of progress.
Also, it’s not as if the company has come to its own defense each quarter. In fact it has flamed the bear arguments. In its most recent report, the company posted an 11% drop in revenue, which also arrived 5% worse sequentially. Declines appeared in every segment, including an 18% year-over-year drop in its PC business. But this was expected. Investors want to know what Dell is going to do about it.
It will be different in 2013 – how?
In my opinion, Dell’s biggest failure continues to be its discounting of growth areas such as networking and servers. During the quarter, these were the lone bright spots of the company – growing 11% year-over-year and 5% sequentially. The company needs to also prove that it can make money by reversing its margin struggles, which recently posted a one point drop.
However, all is not lost. Although Dell has failed to adapt to the new age of mobility, the company is one acquisition away from making up lost ground. It needs to make a play for Research In Motion (NASDAQ: BBRY). This would be the radical “game-changing” move that Dell needs to put itself back on the map and become a player in mobile to rival Apple and Google.
Interestingly, Dell would also become a threat to its OEM partner Microsoft, who’s trying to gain grounds with its own with Windows Phone 8. Dell could easily raise enough money to get this deal done and it would be worth the gamble. With the market having grown more pessimistic about Apple’s growth prospect, a RIM acquisition would be viewed as timely, particularly with all of the excitement that surrounds BB10’s 2013 launch.
Likewise, RIM’s recent quarter proved that the company can still rake in the cash -- amassing close to $3 billion, with $950 million coming from operations. So RIM is doing a decent job managing costs and inching towards profitability. Also Dell could benefit immensely from RIM’s brand value in the enterprise.
Will Dell do it? Whether or not Dell sees fit to make a call to Canada, I still put RIM at the top of my list of acquisition candidates for 2013. It would be a shame for RIM to go to another (and possibly less synergy-friendly) company. Until then, it remains to be seen how Dell emerge from its rut. Although the stock is cheap, it’s hard to see the value.
New Year’s resolutions are great. However, they matter more when they are followed and executed. Although there are many companies that deserve the benefit of the doubt going into 2013, there have also been many companies in 2012 (Hewlett-Packard) that have proven that things can always get worse. Place your bets, but watch the bottom line.
rsaintvilus is long AAPL and has no positions in the other stocks mentioned above. The Motley Fool owns shares of Netflix. Motley Fool newsletter services recommend Netflix. 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!