10 Stocks for 2013: 5 Losers
Dave is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
At Fastball Financial, we started the year by building a diversified portfolio of 10 Stocks for 2013. The goal of the 10 Stocks for 2013 is to provide you with a portfolio of ten great stocks for:
- Diversification across industries and market caps
- Growth in some of the hottest themes and industries
- Sufficient stability and dividends to offset potential market losses
Thus far, the results unfortunately haven't been all that stellar. But I'm hopeful that things will pick-up relative to the S&P 500 later in the year. Our 2012 portfolio started out with a bang, but then faded late. Hopefully, the 2013 portfolio will have the reverse fortune.
Through the first four months of 2013, five of the ten stocks are beating the S&P 500 and five are losing. We examined the five winners here. Now, it's time for the painful task of reviewing the five losers and discussing where these stocks are headed.
(All year-to-date returns discussed below include dividends.)
We'll start with the relative best performer, eBay (NASDAQ: EBAY). The stock is up 2.7% through April, so it's not a total disaster. eBay had a tremendous run in 2012 and I was counting on even more in 2013.
eBay has a great combination of organic growth from its home-grown merchandising business and new growth from its acquired businesses in the payment segment, particularly PayPal. Until 2012, many investors had counted out eBay since it wasn't expected to grow anywhere near what it had previously. The doubters were left in the dust. The question is whether or not eBay's run will continue.
Long-term I still like eBay. The most recent pull back is providing a decent entry point into the stock; nothing spectacular, but it's at least a small discount. I prefer to wait for an even bigger pullback to make it a steal.
Intuitive Surgical (NASDAQ: ISRG) is a tough one. I've invested in this stock for many years now, buying whenever it got discounted and then selling after getting some nice gains. Until recently, it was easy money.
However, the stock has sold-off lately on reports that its Da Vinci machines many not be as safe as claimed. In surgical procedures, there are always things that can go wrong. It is difficult to tell if these reports are examples of those infrequent occurrences of what can go wrong, or if they are a sign of a much larger problem.
So we have to take a step back and look at the risk and rewards, as well as Intuitive Surgical's current valuation. The valuation is the easier part. Its current P/E of 29 is about as low as it has ever been. And every time it has dropped down near this level, it has been a great time to buy.
For a risk and reward, the big risk is that these reports are indicative of a huge problem, resulting in a slowdown or complete stop in Intuitive Surgical's growth. The worst case would that doctors stop using the machines altogether. We certainly have to recognize that risk. But it's that a fairly common risk? Isn't any company in danger of having their growth slow or stop at any time? The reports of surgery complications amplify that concern for sure, but some of that risk is now priced into the stock given its most recent drop.
Intuitive Surgical still has a thriving business, bringing in plenty of cash flow and fortifying an already outstanding, debt-free balance sheet. If all of the reports turn out to be something that Intuitive Surgical can fix, mitigate or otherwise overcome, then the stock will be off to the races. I'm inclined to use this as yet another great buying opportunity. If a market sell-off were to drive the stock down further, then that's even better.
I'll head straight to the punch-line on Lululemon (NASDAQ: LULU). This maker of yoga apparel is a great buy. I did a separate story on this stock recently here. The stock sold-off when it had to recall some of its yoga pants because they were too sheer. Never mind that the company continues to rake in cash, has a loyal following in a niche market, and has a P/E of 41, which, while high, is about as low as it has been in a while. Lululemon's stock tends to give you a lot of pull-backs like that after misinterpreted earnings results. If we get another one, this is a great stock to buy. I expect this one to play catch-up through the rest of 2013.
Oh, Apple (NASDAQ: AAPL). What an amazing stock. Have you ever seen such a wild ride in a company this large? What a roller coaster it has been the past 16 months!
There's no denying that Apple's earnings and cash flow have started to level off. It seems that its days of huge growth are clearly behind it. How can we expect them to keep up that growth rate?
So the stock has gone from a growth stock to a value stock. Looking at the most traditional valuation metric there is, we see that Apple has a P/E ratio of 10.5. Seriously? 10.5 P/E for Apple, who's still raking in cash and now pays out a 2.8% dividend?!?
I'll take that every day of the week and twice on Sunday. Sign me up. This is a great opportunity for anyone who's been patiently waiting to buy Apple. I think the stock will rise again in 2013 when the market figures out that Apple isn't toast. It won't be a party like the first nine months of 2012, but there will be gains to be had.
Lastly, there's F5 Networks (NASDAQ: FFIV). I've been behind this stock for a long-time; buying it on dips and selling after the gains. It's been a great trading stock. But as I outline in my recent article on F5, it is in the penalty box for the time being. I need them to show me some growth before I jump back in. The stock is down 21% year-to-date through April. It wouldn't surprise me if it has been beaten down too far, but I prefer to wait and see this time around. The trends are not positive. The chart below shows its price, cash from operations and return on equity all trending downward.
Like many of the winners in our portfolio, I still like most of these stocks, with the lone exception being F5 Networks. Not all of them are worth buying right this moment. I'd still prefer to wait for a big pullback, but I can't blame you if you're itching to pull the trigger on companies such as Apple, Intuitive Surgical and Lululemon.
Thanks for reading!
Apple has a history of cranking out revolutionary products... and then creatively destroying them with something better. Read about the future of Apple in the free report, “Apple Will Destroy Its Greatest Product.” Can Apple really disrupt its own iPhones and iPads? Find out by clicking here.
Dave Zaegel owns shares in Apple and F5 Networks. The Motley Fool recommends Apple, eBay, F5 Networks, Intuitive Surgical, and Lululemon Athletica. The Motley Fool owns shares of Apple, eBay, F5 Networks, and Intuitive Surgical. 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!