This Week's Headline-Making Stocks That Are Poised to Move
Richard is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The third trading week of the New Year is now over. By the erratic movement of the indexes, investors have realized that volatility has not gone away, even though fiscal cliff jitters are a thing of the past. However, there’s also good news. Strong housing and job reports have given investors reasons to assume more risk, helping propel S&P 500 to its 5-year high.
Then again, it didn’t hurt that corporate earnings are arriving better than expected. And it’s just the beginning as several more names are expected to report this coming week. But let’s take a moment to reflect back. There were several companies in the headlines this week for various reasons. While some have erased uncertainties, of course others created more.
Apple (NASDAQ: AAPL) – Down 3.8% for the week
As with the week before, Apple’s five-day trading session resembled a seesaw. It began with a report last Monday by the Wall Street Journal that unnamed sources said Apple had cut its orders for screens and other iPhone 5 components due to lower than expected demand.
On the news, Apple shares dropped almost 4%, falling below $500 for the first time in almost a year. However, as I pointed out, this wasn’t “news.” Disappointingly, the story was then corroborated by Japan’s Nikkei – proclaiming that Apple had asked display manufacturers such as Sharp and LG to cut orders by 50%.
The panic among investors continued and the shares kept falling – reaching $483 on Tuesday. Wednesday, “cooler heads” prevailed. The stock gained as much as 5% to $506 – helped by Wedge Partners’ analysts Brian Blair who said that the Wall Street Journal got it wrong. He said, “We see these cuts as primarily related to normal seasonal patterns coming off of the holiday period and believe they are within a normal 15%-25% range, not the 50% range that was reported over the weekend.”
Essentially, Apple’s stock had just become the cheapest equity on the market. Although estimates are being trimmed, average price target remains $720, or 44% higher from current levels. It helped that Rob Cihra or Evercore Partners reiterated his Overweight rating on the stock and issued a $750 price target.
Although Apple didn't comment on WSJ's report, the company will either affirm or deny the story when it announces Q1 results on Wednesday after market close. The Street is expecting another solid quarter with 18% revenue growth. Analysts are also projecting $13.33 in earnings per share on revenue of $54.5 billion.
These numbers are meaningfully higher than Apple’s estimates of $11.75 per share on revenues of $52 billion. On the other hand, the company is known to under-promise and over-deliver. Also, that iPhones have regained their U.S. market lead and represent well over 50% of Apple’s fiscal Q1 revenues, the company should have no problem reaching the high end of its estimates.
Dell (NASDAQ: DELL) – Up 18% for the week
The beleaguered tech giant had an interesting week. Shares soared 18% on a rash of M&A rumors. On Tuesday, both the Wall Street Journal and Bloomberg reported that the tech giant had engaged in conversations with TPG, Silver Lake and other private equity investors regarding a leverage buyout.
The stock then went on a two-day rally sending sending Dell’s market cap higher to $22.3 billion. Even before the rally, I didn’t see how realistic this deal would be, considering Dell’s massive size. After shares jumped, the possibility now seems even less practical. Then again, what would be the benefit of a deal for Dell?
This is no slight against the company. But Dell is known for its PC business, which is known to be a dying industry. In Dell’s most recent report, the company posted an 11% drop in revenue, including 5% sequential decline. For that matter, every business segment eroded, including an 18% year-over-year drop in its PC business.
Although Dell has spent considerably on its own M&A deals, there have been no meaningful signs of progress and the Street has lost patience. Clearly Dell has problems with realizing value. However, digging for value in “non-organic” ways never work well in the end. Then again, it didn’t stop me from tossing my own opinions. It remains to be seen how this unfolds. But Dell’s not a stock to hold.
Facebook (NASDAQ: FB) – Down 6.5% for the week
Facebook made headlines this week with the release of the company’s highly anticipated graph search. CEO Mark Zuckerberg described it as the beginning of a new phase in the history of the internet. The social media giant said this will change the way we search the world around us and organize all information on social, rather than algorithmic lines. In other words, “Top this Google.”
It sounds exciting. But what does it really mean? For it to work, it first requires that your friends on Facebook share everything. With privacy already a huge concern, who wants to do that? What would be the compelling reason?
For instance, the value in the feature is predicated solely on entries from those you know. This means that if no one is saying how great this restaurant is, you will never know about it – regardless of your search. Facebook will have to figure out how to incentivize the growth of its database – not an easy task.
Microsoft (NASDAQ: MSFT) – Up 3.8% for the week
Shares of Microsoft climbed up almost 4% for the week despite chronic bearishness about consumers’ embracement of Windows 8, which has failed to meet expectations. It was designed to unify PC functionality with tablets and smartphones while optimizing touch-screen capabilities.
Unfortunately, the market has yawned -- remarkably, even during the holiday season. This is according to a report from consulting group Gartner, which said PC shipments arrived at 90 million in the last quarter of 2012 – declining by 4.3%. Despite this reality, the software giant said it plans to raise prices on Windows 8 upgrades effective Feb. 1.
Microsoft is certain to be asked about this decision when it reports Q2 earnings on Thursday. Consensus estimates call for 75 cents per share on revenues of $21.7 billion. EPS will likely arrive at -5% to flat year-over-year, while sales are projected to grow at 4%. The stock has been a disappointment, no doubt. Then again, any surprise will send shares higher. Also, a 3% dividend makes easy to wait for Microsoft to “wake up.”
Sirius XM (NASDAQ: SIRI) – Traded 0% for the week
Although shares of Sirius XM traded flat for the week, another bit of uncertainty has been removed. As expected, Liberty Media made it official that it had indeed acquire the necessary amount of shares needed to become majority owner of the satellite radio giant.
According to an SEC filing, Liberty Media disclosed that it acquired an additional 50 million shares of Sirius on Tuesday at an average price of $3.156 – pushing its ownership stake from 49.8% to roughly 50.5%. This move comes less than two weeks after Liberty received FCC approval to take control of Sirius XM.
Ever since Liberty was awarded 40% of Sirius in exchange for a $530 million loan, the company had been growing its position in Sirius by buying on the open market. But now it’s official. What will follow is the expected spin-off or the RMT as I’ve discussed here. Meanwhile, Sirius announced this week Feb. 4 will be the date it announces results for Q4.
In the meantime, there is still plenty of value in shares of Sirius at current levels. I would be a buyer here ahead of the report. For that matter, it is not farfetched for shares to reach the $3.50 level following what is expected to be a very exciting announcement.
rsaintvilus is long Apple and has no position in the other stocks mentioned. The Motley Fool recommends Apple and Facebook. The Motley Fool owns shares of Apple, Facebook, 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!