As I have talked about many times before, investing in companies that can grow corporate profits over the long term is essential when it comes to becoming a successful investor. Sometimes, though, it does pay to be a contrarian and go against the herd.
One sector that has been hit hard lately is technology stocks. Technology stocks, especially those that build hardware for personal computers (PCs), have seen corporate profits erode substantially over the past decade.
After a shift by consumers toward tablets and smartphones, the technology stocks that have not been able to adapt to these new product forms have seen a gradual but significant drop in corporate profits. The question to ask: is a turnaround possible?
The latest data indicate that technology stocks in the PC sector will face significant headwinds. For the first quarter of 2013, global PC shipments declined 13.9% compared to the same quarter in 2012, according to research firm International Data Corporation (IDC). (Source: “PC Shipments Post the Steepest Decline Ever in a Single Quarter, According to IDC,” International Data Corporation web site, April 10, 2013, last accessed April 19, 2013.)
This is the worst drop year-over-year for PCs since IDC began tracking the market in 1994. This is also not an aberration, since the market has now witnessed four consecutive quarters of declines.
However, since technology stocks in the PC sector have sold off dramatically, is it possible that these stocks now offer a value trade? The recent takeover attempt on Dell Inc. (NASDAQ/DELL) might shed light on this question.
There have been several interested parties looking to take Dell private. However, recent … Read More
When it comes to the recent pullback in the market, many people naturally wonder if this is the time to start accumulating certain companies, especially technology stocks. The answer, of course, is far more complicated. Obviously, each individual must assess their goals and risk profile before considering any investment.
My goal is to be on the lookout for companies that can continue to grow corporate earnings over a very long period of time. One area that has interested me for a long time because of this ability to grow corporate earnings is in technology stocks.
Recently, many technology stocks have not benefited from the surprisingly strong rally in the overall market. A major reason for this is that many investors are focusing on dividend yield rather than corporate earnings growth. Additionally, many technology stocks are not seeing exceptional corporate earnings growth, as the global economy is still somewhat weak.
Not all technology stocks are the same. There are vast differences between technology stocks, and an investor needs to dig deep when evaluating which firms can grow corporate earnings over a full decade.
One company that I have liked over the past few years has been eBay Inc. (NASDAQ/EBAY). While many people believe eBay is still primarily a place to sell your knick-knacks, they’re wrong. During the latest quarter, the company reported total revenues were up 14% year-over-year. (Source: “Q1 2013 financial highlights,” eBay Inc. web site, April 17, 2013.)
eBay is transitioning into a real powerhouse through its “Marketplace,” which is where retailers sell fixed-price online goods. The company is now looking at adding same-day delivery services for these goods, … Read More
With capital shifting into the perceived safety of blue chips and large-cap stocks, small-caps and technology stocks have been declining on the charts.
Given the advance so far this year in the equities market, it’s understandable to expect some hesitancy.
The Dow is up 13.4% as of April 12, and it’s on pace for a gain of 47% on an annualized basis.
I doubt this will happen and expect market adjustments in the equities market along the way. The same goes for the S&P 500 and the other key market indices.
Small-caps in the equities market have also fallen off since the end of the first quarter.
At the back of the pack is the technology sector; but there has been a lack of strong leadership from any sector, including the semiconductor, Internet, and technology sectors, in general.
The following chart shows the recent movement of the three sectors (semiconductor, Internet, and technology) since March and their sideways direction.
Chart courtesy of www.StockCharts.com
Without any leadership in the equities market, the NASDAQ and technology stocks will continue to drift. However, there are some opportunities for speculators searching for contrarian situations.
The Internet sector is flat and lacking a clear direction.
In the stock chart below, the First Trust Dow Jones Internet Index (NYSEArca/FDN) fund shows the sideways channel that has been in place since late January.
Extrapolating on this data, I don’t see any strong and clear signs of a breakout at the top channel line, but if you think longer-term, there are opportunities in the equities market.
Chart courtesy of www.StockCharts.com
The “Best of Breed” in the Internet sector … Read More
I just took a look at my friend’s Samsung “Galaxy III” smartphone and must admit that it looks pretty impressive compared to my “iPhone” by Apple Inc. (NASDAQ/APPL). However, the applications available for the iPhone are what will keep me from switching, at least for the time being.
Apple was trading at $705.07 on September 21, but the stock made a steady decline down to the $505.00 level on November 16 prior to rallying back to the current price of $578.00. Based on my stock analysis, there’s profit-taking in Apple shares, which is not a surprise, given the enormous rip-up in the share price.
My stock analysis tells us that institutional ownership shows a 0.76% net sale of Apple stock over the last quarter-to-quarter, representing 4.8 million net shares sold by institutions, according to information from Thomson Financial.
In fact, my stock analysis shows that technology and growth stocks have been the focus of the market selling so far in 2012. The NASDAQ is down four percent as of Monday, versus a 0.07% advance by the S&P 500 and blue chips.
What I’m getting at is that growth stocks are being sold by institutions.
Following where the professional money is flowing helps gives us another tool to evaluate the stock markets and get a sense of what is happening.
Behind the concept of following the money of institutional investors is the belief that these experts are likely to understand the company’s situation more than anyone outside of the executive management group. My stock analysis is that, by looking at the flow of money from institutional investors and monitoring what stocks … Read More
The market is moving lower, and there’s nothing that appears to be supporting it. The S&P 500 has lost nearly eight percent since its peak of 1,465 in September.
The fact that the S&P 500 failed to hold above 1,400 was not a surprise, based on my technical analysis. In May, the break at 1,400 was the S&P 500’s fourth top above 1,400 since 2008.
Since the election, the market has edged lower in six of seven sessions due to heightened stock market risk.
On average, only about 37% of U.S.-listed stocks are trading above their respective 200-day moving averages (MAs), versus 61% a month ago. The short-term weakness is even more prevalent with about 19% of stocks above their respective 50-day MAs, versus 61% a month ago.
What happened to what were supposed to be the best six months of the year for investment gains?
Based on historical records, investing in the six months from November to May has produced the best returns for stocks versus the June to October period, according to the Stock Trader’s Almanac.
So far, November has been horrible, with the key stock indices down more than four percent. But as I said when I previously discussed this pattern, things could be different this time around, given the abundant stock market risk, including the financial crisis in the eurozone, a stalling economy in China, tension in the Middle East, and the presidential election and upcoming fiscal cliff in the U.S.
We are seeing some selling capitulation in the market because of the abundant stock market risk and lack of any positive news that would encourage … Read More
When it comes to technology stocks, I don’t think any one firm can match the massive growth in both the company and the share price that Apple Inc. (NASDAQ/AAPL) has experienced over the past decade. Some people might forget, but at one time the market sentiment on Apple was so bad that some people might have even thought it was going to go bankrupt. Obviously, Apple has been able to not only turn things around, but it has also been able to set a new standard for technology stocks.
This is where things get interesting. After being a company that only sold “Mac” computers, Apple introduced the “iPod.” The iPod was not the first MP3 player, but it did revolutionize the industry as a slick product along with the introduction of “iTunes.” The iTunes ecosystem allows Apple to lock users into its operating system, a unique strategy at the time among technology stocks. Right now, the only other ecosystem for mobile devices is “Android” from Google Inc. (NASDAQ/GOOG).
Looking back, market sentiment became gradually more bullish on Apple until the last year when it has increased substantially to almost a frenzied state. I would say that even some institutions that don’t include technology stocks in their mandate are long on Apple shares. I pose one question: is the stock priced to perfection? That doesn’t seem possible, as we’re now seeing some cracks in the market sentiment.
The new “iPhone 5” is another strong product offering from Apple. Approximately two-thirds of the company’s corporate earnings come from iPhone sales. The iPhone 5 is lighter, bigger, and more powerful, and it runs … Read More
While many technology stocks for the past few years have done extremely well, the old-fashioned personal computer (PC) makers have struggled. As the marketplace has shifted—and corporate earnings with it—away from the traditional PC to tablets and smartphones, the old technology stocks that we used to remember fondly have been falling by the wayside.
Hewlett-Packard Company (NYSE/HPQ) is the latest in a line of PC makers to have struggled in growing corporate earnings. The latest news from the company is that its CEO, Margaret Whitman, met with analysts and gave them a disappointing forecast for the company.
While Whitman did state that she has been taking some initiatives to turn the company around, it appears Wall Street was not impressed, as shares plummeted. Two aspects of the company’s new focus will be a narrower product line and an increased focus on corporate customers. Whitman also stated that next year’s corporate earnings will be below current analyst estimates.
Since 2009, the shares have lost over $90.0 billion in market value, a stunning decrease for any technology stocks. She stated that the company was not properly aligned with the current marketplace, an apt observation. With its current focus on old-fashioned markets, such as the PC area, and not enough innovation in new areas, Hewlett-Packard (HP) has not been able to compete with the newer, younger, nimbler technology stocks of today.
While I certainly don’t think the PC market will go away anytime soon, it should be only one segment of a company’s product lineup. Technology stocks in this day and age need to have products across the entire scope of the technology … Read More
The latest quarterly report from Research In Motion Limited (NASDAQ/RIMM; TSX/RIM) was a positive surprise, which resulted in the shares moving up strongly following the news. Yes, Research In Motion (RIM) has had one of the sharpest declines in recent memory among technology stocks, but some investors are stepping in thinking that perhaps the worst is over and the market view has become overly bearish.
The important thing to note when investing is whether a company can beat expectations. The market view is what drives prices in any market. The more popular something is, the higher the demand and, thus, the higher the price. RIM’s stock has been beaten up with extremely poor sales results, therefore the market view was negative, and rightly so. However, this quarter the company exceeded estimates, which admittedly were low, for both revenue and the number of devices shipped. The CEO also stated that the company’s customer base also went up, from approximately 78 million users to 80 million.
RIM has failed to evolve and innovate against competing technology stocks, and this has meant that in a sector in which tastes change rapidly, it has fallen out of favor with the market view. This has not yet changed, as the company has yet to release its new operating system, due out in early 2013, so it has not yet made any significant gains in market share. Make no mistake, RIM is far from safe, but the key metric I was looking for was its cash levels.
Cost cutting was extremely important, as revenue, we knew, was going to be down. If costs could not be … Read More
Marissa Mayer, the new CEO of Yahoo! Inc. (NASDAQ/YHOO), recently spoke about her plans for the future of the company. As we all know, technology stocks in this sector are constantly evolving. At one time, Yahoo! was a giant among technology stocks; those days have long since passed. Growth in corporate profits has been evasive for the firm, and Mayer took this opportunity to voice her opinion on where the company should be heading.
Mayer comes from Google Inc. (NASDAQ/GOOG) with an engineering background. She helped build the Google brand and, ultimately, drive corporate profits. While her success at Google is laudable, the long-term problems at Yahoo! still exist. She’s starting at the beginning and announced a dramatically redesigned homepage. She believes that this, along with changes to the search and e-mail functions, will help attract more viewers to Yahoo! and, ultimately, raise corporate profits.
Her plan includes a greater focus on its mobile platform. All technology stocks and their investors are spending a lot of time scrutinizing mobile platforms. This segment will be a crucial push for the next leg of higher corporate profits. The number of smartphone users is growing, and this segment will be critical to the success of technology stocks over the next decade. Technology stocks that can’t convert users into corporate profits will most likely see their shares languish.
Mayer also spent some time discussing the need to attract talent. I’ve lamented on this topic before; once technology stocks start to fall behind, the best talent starts to leave. As innovation is the key driver for corporate profits growth in this industry, technology stocks need … Read More
Research In Motion Limited (NASDAQ/RIMM; TSX/RIM) has been one of the worst-performing technology stocks in recent memory. As the mobile environment has continued to evolve, Research In Motion (RIM) has failed to keep up with other technology stocks that were developing new and innovative products. This is clear from the current market view, as represented by the huge decline in RIM’s stock price and the massive decline of its market share. While at one time RIM had over 40% market share in the smartphone segment, it’s currently in the low single digits—a huge decline in a short period of time.
Some investors are hoping that the current price level is a bottom for the share price. With other technology stocks in the sector soaring to new heights, namely Apple Inc. (NASDAQ/AAPL), everything for RIM rests on the view platform called “BB10.”
To start with, RIM once again disappointed the market earlier this year when it announced the delay in the release of its new operating system and hardware until early 2013. This is a very long delay for technology stocks in this fast-moving sector. This also resulted in a further negative market view, as shares did indeed sell off at the point.
However, there are now reports that the existing BlackBerry Enterprise Server (BES) infrastructure will not be compatible with the new BB10 software. Essentially, RIM is forcing all businesses to upgrade their hardware and software to the new BB10 platform. While technology stocks do need companies to upgrade in order to generate revenue, I’m not sure this heavy-handed approach is smart. The market view, as seen by the stock’s … Read More
The latest company citing economic weakness as a headwind is Intel Corporation (NASDAQ/INTC). The firm drastically lowered its forecast for the third quarter based on a dramatic decline in demand, which the firm believes stems from a weakening global economy. While we have seen commodity stocks, such as iron ore producers, suffer in a weakening global economy, it now appears that technology stocks are feeling the brunt.
Some have hoped that technology stocks might be able to weather this latest economic storm because of the ability of new technologies to increase productivity without having to hire additional workers. Increased levels of productivity are one of the strongest selling points for technology stocks.
A large portion of Intel’s sales goes into the personal computer (PC) market. With PC makers lowering orders ahead of the holiday season, it becomes apparent that consumers have shifted away from traditional computers and are now opting for tablets. The environment for technology stocks continues to evolve, and it appears Intel is still relying on the consumer trends of yesterday.
Some might be thinking that PC sales are only slow ahead of the launch of the new operating system created by Microsoft Corporation (NASDAQ/MSFT). This might be the case; however, it is a dangerous time to trade technology stocks based on such a hunch. I would suggest waiting to see some early indications of adaptation of the new operating system and whether it will translate into substantially higher PC sales. Personally, I would focus on technology stocks for tablets and smartphones, as this segment appears to be the market segment for growth.
Chart courtesy of www.StockCharts.com
Intel … Read More
An embarrassing turn of events continues to unfold after the recent initial public offering (IPO) of Facebook Inc. (NASDAQ/FB). Talk about a roller coaster of market sentiment changes. Prior to the IPO, it seemed as if everyone wanted a piece of one of the hottest technology stocks in recent memory. Yes, Facebook’s user growth has been tremendous over the past few years, but questions are arising about everything related to the company, including questions from its underwriter Morgan Stanley (NYSE/MS).
When technology stocks go public, the underwriter will try to sell one basic idea to investors: the stock’s future growth is huge. Market sentiment was built up to a frenzy, yet it appears that the environment for technology stocks in this social media space is changing at a rapid pace, faster than Morgan Stanley expected. Morgan Stanley lowered its price forecast for Facebook, just a few months after its IPO. This is quite a surprise, not just for technology stocks, but for any company. The lead underwriter should know everything there is to know about the company. For changes to occur so soon after an IPO, it certainly causes some eyebrows to be raised.
Market sentiment has, of course, drastically shifted from overly bullish to quite negative, with shares near the year’s lows. With a high of $45.00 and a low of $17.55, this extreme shift in market sentiment cannot give investors much assurance as to the type of investors involved in this stock. Yes, many investors in technology stocks are shorter term and, thus, cause increased levels of volatility. But if the underlying strength of the company is that … Read More
The recent ruling in the patent lawsuit in favor of Apple Inc. (NASDAQ/AAPL) against Samsung Electronics Co. Ltd. (KRX/005930) is seen by some as a big blow to Samsung. Technology stocks are constantly innovating, and I think market sentiment is missing the picture in this case. While Samsung did infringe against Apple and it is going to have to pay over $1.0 billion as part of the penalty, let’s take a look at technology stocks in this sector and see if there are any opportunities due to mispriced market sentiment.
First off, let’s not overthink the situation. Apple is a clear beneficiary among the technology stocks in the mobile phone sector. Market sentiment is, of course, extremely bullish of Apple, which makes entering a new position at these lofty levels quite dangerous. Stock price aside, technology stocks might approach research and development in a slightly more conservative manner now that they know how litigious Apple will be. Market sentiment will continue to remain positive, but I would wait for a pullback and a more attractive entry option in Apple.
Samsung is not traded in North America, but among technology stocks, it is clearly building a huge amount of momentum. It will appeal the ruling, no doubt, but even if it is not successful, I think the market sentiment if far overdone in this case. This patent case was for older handsets of Samsung. It does not include the best-selling Galaxy SIII. Older models have seen a huge fall-off in sales anyway, so the real hit is far less than market sentiment is indicating. If the current ruling holds, Samsung will … Read More
The latest corporate earnings results from Dell Inc. (NASDAQ/DELL) were quite shocking, as the firm dramatically cut its full-year forecast. Technology stocks have always been under heavy competition, but it appears that Dell is losing its touch at driving corporate earnings growth rates.
Dell is fighting against a whole new level of technology stocks. Competition is coming not just from other PC makers, but now tablet makers as well. We’ve all seen the massive surge in “iPads” purchased from Apple Inc. (NASDAQ/AAPL) and this landscape of technology stocks encroaching into each other’s territory will continue.
While Dell is having a hard time maintaining corporate earnings, technology stocks like Apple are increasing them. The reason is that product innovation is driving consumer tastes and, ultimately, corporate earnings.
With a forecast of decreasing revenue and a much-lowered corporate earnings level, the company needs to adjust its business structure. The company did cite that a possible reason for the slowdown was a lull in buying, as people await the new Microsoft Corporation (NASDAQ/MSFT) “Windows 8” operating system.
Part of the solution, according to Dell, is to cut costs. I think the firm needs a bolder strategy to compete against other technology stocks. Generating corporate earnings in this heavily competitive marketplace is not easy, and I don’t see how Dell will all of a sudden regain its old form.
Chart courtesy of www.StockCharts.com.
While some technology stocks like Apple are hitting new highs, Dell has languished near the bottom. Since the spring, any time the market has shown any life, sellers have dumped shares into the market. With the corporate earnings forecast now … Read More
Technology stocks are always in a state of flux due to the rapid levels of innovation. Technology stocks that can constantly be on the front-edge of the innovative spectrum will tend to gain an increasingly large market share, and the high levels of corporate earnings that go along with that position. One of the clear leaders among technology stocks is Apple Inc. (NASDAQ/AAPL).
While many people associate Apple with the “iPhone” and the “iPad,” both of which have been massive drivers of corporate earnings for the firm, if one thinks back over the years, the company has gone through numerous permutations. While some technology stocks have tended to stick with their bread-and-butter products, Apple has continually adapted and changed. This ability to not only take chances and encroach into other sectors where existing technology stocks are already in a developed market, but to be able to change the way consumers view the market category is Apple’s edge. This ability to create a niche product and develop almost a cult-like following allows the firm to operate at higher profit margins, and, thus, earn a large share of corporate earnings.
If we look at the iPod, the industry for MP3 players was not new, as many technology stocks made such devices. Apple did not invent the MP3 player; it revolutionized the way it looked and felt, and created a market where buying the product made one “cool.” If technology stocks can differentiate themselves in a crowded marketplace in such a manner, this will obviously drive corporate earnings, as this separation within the sector allows for higher margins.
There are now reports coming … Read More
Competition with technology stocks is going beyond product offerings and is now encroaching on delivery options. With reports that Amazon.com, Inc. (NASDAQ/AMZN) has been working on a same-day delivery option to help differentiate itself from the competition and ultimately drive corporate earnings, word has just been released from eBay Inc. (NASDAQ/EBAY) that it too is trying the same-day delivery option. eBay is initially trying a test run in San Francisco to determine if the service is worth the extra effort.
This type of competition between technology stocks is great for consumers, but it can be a headache for investors trying to determine future corporate earnings levels. Even though revenue can increase, corporate earnings can decline because of the costs associated with the establishment of distribution warehouses and logistical software; running a same-day operation is not a simple offering. Technology stocks that continue to innovate usually do come out on top, and it is nice to see eBay back on the offensive. Even as rumors kept popping up regarding Amazon.com’s delivery options, eBay actually began its trial run first.
Both of these technology stocks will only see a marginal increase, if any, in corporate earnings because of the delivery service itself. The thinking behind the strategy is that it will help drive traffic to their existing products, which have a higher profit margin, and the net effect will be a total rise in corporate earnings.
Amazon.com already has a delivery service called “Prime;” for $79.00 a year, members get free two-day delivery on many products. The firm doesn’t break out specific numbers for the service, but rumors are that it isn’t … Read More
Google Inc. (NASDAQ/GOOG) is one of the most unique technology stocks. There are many technology stocks that try to rival Google. Google sets itself apart from other technology stocks through innovation as a key investment strategy. But this desire to expand too far has led to some mistakes. While many investors believe Google to be a pure marketing company, it has expanded its investment strategy to include the retail sector.
The retail sector is a slightly different animal for Google, and technology stocks need to adapt their methods for that sector.
Google has recently announced that it will be selling tablets directly to consumers, along the same lines as Apple Inc. (NASDAQ/AAPL). Technology stocks will tend to copy each other once they see a firm has been successful with an investment strategy. The tablet market is one in which Google is falling behind, as Apple currently holds approximately 73% of the market share, according to industry research firm Gartner Inc. In addition to Apple, Amazon.com, Inc. (NASDAQ/AMZN) also sells a tablet, for the lower end of the retail sector, which, funny enough, runs off of Google’s “Android” operating system.
The success of Amazon’s tablet, the “Kindle Fire,” is a problem for Google, as other firms decide to build their platform on top of the Android operating system. This will cause more fragmentation in the retail sector, resulting in Google losing control of its operating system. The advantage of Google’s search engine is that it controls and can keep track of all the searches that are occurring, mining this data for marketing purposes. This data is worth billions of dollars. Once … Read More
Yahoo! Inc. (NASDAQ/YHOO), one of the former leading technology stocks, has been plagued with a stock price that just hasn’t moved for quite a long time, as opposed to several other technology stocks that have had significant price appreciation. Not only have corporate profits been evasive for the firm, but there’s also been a scandal recently. Former CEO Scott Thompson had been discovered to have allegedly lied on his resume about having a bachelor’s degree in computer science. This mistake forced him out; Marissa Mayer has just been named as CEO.
A well-known name among technology stocks, Mayer comes from Google Inc. (NASDAQ/GOOG). With an engineering background, she helped build the Google brand and ultimately drive corporate profits. While her success at Google is laudable, the long-term problems at Yahoo! still exist. It will be quite interesting to see if her skills are transferable to more problematic technology stocks such as Yahoo!, which has had issues in generating corporate profits for quite an extended period of time.
This hasn’t been the only change, as the landscape for technology stocks continues to evolve. Yahoo!’s North American division is essentially trading for nothing. Most of the value of Yahoo! USA is built on cash and its stake in Alibaba and Yahoo! Japan. Yahoo! has entered an agreement that will see up to half of its stake in Alibaba sold for $7.1 billion. After taxes, Yahoo! expects to net approximately $4.2 billion and $800 million in preferred Alibaba stock.
Even after this deal and the announcement of a new CEO, the stock has not moved substantially, stuck in a range. This is because … Read More
Just when you think it couldn’t get any worse for Research In Motion Limited (NASDAQ/RIMM), the company seems to find a way to disappoint. In addition to a poor quarterly earnings report and a gloomy forecast, the company now has been found liable for $147.2 million for patent infringements against Mformation Technologies Inc.
With the market view for Research In Motion (RIM) being so poor to begin with, one possible positive was its number of patents, which might be the saving grace for the firm. However, it appears its patent portfolio isn’t as strong as the market view had initially thought. The goal of technology stocks is differentiation through innovation. It appears that RIM’s software, “BlackBerry Enterprise Server,” has been infringing on existing patents. This puts an even gloomier market view on what its patent portfolio is really worth.
It appears that during negotiations for licensing, Mformation alleged that RIM simply turned down the licensing agreements and went ahead incorporating patented software into its own Enterprise software. Apparently the jurors agreed with Mformation, which leads me to wonder how RIM thought it could get away with such a blatant disregard for the legal system. It will also raise doubts in the general market view of how much of its technology is truly built in-house. Technology stocks that have a market view that doubts the true level of innovation will struggle, as investors frown upon such questionable investments.
The market view might not fully encapsulate the true extent of the costs, as this total of $147.2 million does not include future sales outside the U.S. or for government customers. Early estimates … Read More