From my perch here in upstate New York, a deluge of rain has
made the local roads impassable. The fact that the Dow Jones
Industrial Average dropped another 200 points on June 23 just adds
to the gloom. Yet strangely enough, I'm feeling bullish. Many of
the companies I track are seeing their
skid lower into real bargain territory. If you "love 'em when
they're hated," then this may turn out to be a fine time to
up on these bargains when gloom-and-doom is the mantra of the day.
Here are four stocks that have begun 2011 on a sour note but could
finish the year with strong gains.
1. RadioShack (
Shares of this electronics retailer surged from $18 to $22 last
fall as investors began to suspect the company's massive retail
footprint and hefty
would make it an attractive
Since then, it's been all downhill. The M&A speculation cooled
off and shares fell not just back to $18, but all the way to $13.
Why the pummeling? Analysts are telling clients the June quarter
will be somewhat soft because a lack of hot products (outside of
Apple's (Nasdaq: AAPL)
iPad) and a still-cautious consumer keep foot traffic at weak
levels. Consensus estimates
for per share profits to come in at $0.38, but don't be surprised
if RadioShack misses that target by 10%. The weak stock chart is
telling us so.
It also doesn't help that RadioShack was just booted out of the
S&P 500 on Friday, forcing
funds to unload shares by nearly 2%.
Still, this is an outrageously cheap stock that is bound to start
attracting value investors. How cheap? Well, despite very
lackluster sales, RadioShack is still likely to throw off roughly
$300 million in operating cash flow this year. The entire company
is valued at just 4.5 times that figure.
It's also important to remember new CEO Jim Gooch has only been in
place for a few months after the unsuccessful tenure of his
predecessor, Julian Day. Investors should expect bold action from
Gooch in coming months. "He brings a high level of focus and
intensity, which will serve the company well as it manages through
a challenging landscape," note analysts at UBS.
One key move: more stock buybacks that have already shrunk the
share count from 180 million in 2002 to a recent 120 million.
RadioShack recently issued a $325 million
that puts more cash on the
. "As a result, we expect the company to continue to aggressively
deploy capital back to shareholders," add the UBS analysts. This is
an ugly stock chart, but the underlying business is not in trouble.
It's just stuck in the mud for now. But that starkly cheap
valuation is too great for investors to ignore.
2. Rentrak (Nasdaq: RENT)
As 2010 came to an end, this stock managed to punch through the $30
mark. Six months later, it has plunged to just $16.
Rentrak, a provider of media viewership data, has been going
through a wrenching transition. A previous focus on DVD sales has
started to fade as the medium loses consumer appeal. A newer focus
on other media habits such as niche cable TV programming is just
getting going. As one segment shrinks and the other builds,
management has had a hard time gauging how each quarter will fare,
and as a result, quarterly profits have missed forecasts by a wide
for two straight quarters. Another concern: rival Neilsen Holdings
(Nasdaq: NLSN) has also begun to offer cable viewing data, looking
to gain some
back that had been lost to Rentrak.
That concern may be misplaced. "We believe Nielsen's testing of
(set-top box) data is in fact a validation of Rentrak's approach to
TV ratings," note analysts at Kaufman Bros, who believe that shares
will more than double to $37 once Rentrak's current growth
initiatives start to really take root. The weak recent quarterly
results also have an explanation. "Owing to the introduction of a
system upgrade, we think potential new clients delayed purchase
decisions," note analysts at Albert Fried, who recently lowered
their target price from $32 to $27. After flubbing two straight
quarters, analysts have lowered the bar and now expect Rentrak to
earn just $0.12 a share in the current quarter (down from forecasts
of $0.20 just 30 days ago). As the company starts to deliver
results ahead of forecasts, shares should finally start to reverse
the downward trend that has been in place for much of 2011.
3. Akamai Technologies (Nasdaq: AKAM)
I recommended shorting this tech stock last September when shares
traded over $50, noting that
rumors seemed like a bad
for a recent price spike and "If a suitor doesn't emerge -- and
it's not clear that one will -- then shares could give back all of
the recent gains." Shares are now below $30, and I'm changing my
tune, seeing decent 30% upside.
To be sure, pricing pressures in the company's core content
delivery network (CDN) market remain in place, which explains why
profits are expected to grow only 10% this year even though traffic
on Akamai's network will grow at least twice as fast. The outlook
for 2012, though, should be a stronger one. This is because Akamai
is starting to push a range of other services and products that
help clients manage their media platforms. And those new offerings
margins. This is a stock that has always garnered a very high
multiple, but now trades at just 16 times projected 2012 profits.
If you exclude Akamai's $1.2 billion in cash, then the multiple
drops even lower, closer to 12.
4. Ford Motor (
Lastly, I need to reiterate my bullish view on Ford, which I most
recently spelled out in this article.
Consumers remain under duress around the world, and Ford is still
on track to earn nearly $2 a share this year. Profits could double
in the next five years as global industry sales eventually rebound.
The stock, at just $13, is just too cheap to ignore.
Action to Take -->
These stock charts imply that the business at each of these
companies is broken. Instead, they are simply at transition points.
Each company should post improving results in coming years. When
investors sense a bottom has been reached in the market, these are
precisely the kinds of stocks that will attract both value and
growth investors, causing a sharp rally in shares. Keep an eye on
these names and pick one or two of your favorites to possibly
pounce on when you get a sense that things are turning. You could
end up with a nice gain as a reward.
-- David Sterman
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Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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