Earnings season is one of the best times to buy stocks, as improved or disappointing reports can change the outlook for a company. The market does fairly well at valuing companies correctly, but with earnings, we can see which stocks the market misjudges with large post-earning pops and drops. In this piece, I am looking at such stocks, and determining those that still present upside following earnings.
Cheap & moving higher
Love it, like it, or hate it, Apple Inc. (NASDAQ:AAPL) is cheap, and is still a massive company. Its earnings might have been the most anticipated of the quarter, as investors desperately awaited something to catapult the stock higher. Well, with an 11% gain over the last month, and a FQ3 beat, I think Apple Inc. (NASDAQ:AAPL) is trending higher, although quietly.
In the quarter, revenue grew just 1% year-over-year. However, gross margins met expectations, and iPhone sales lived through the doom and gloom that many analysts had predicted. Overall, it was a solid quarter, and now, we can look forward to new product launches. In the coming quarters, the company is expected to launch an iWatch, iPhone 5S, and a cheaper iPhone. These products combined might add to Apple Inc. (NASDAQ:AAPL)’s existing product-line and help boost revenue. Moreover, strong sales of the iPhone 4 and the 4S further indicate that new product launches won’t completely cannibalize current offerings. These things combined make the future quite attractive for Apple Inc. (NASDAQ:AAPL).
As a side note, I would like to mention Apple Inc. (NASDAQ:AAPL)’s 10 times forward earnings and its price/sales ratio of 2.35. These metrics compare favorably to Microsoft’s 10.5 times forward earnings and its price/sales ratio of 3.36! Clearly, with more catalysts, Apple Inc. (NASDAQ:AAPL) has more upside in addition to already being very cheap.
The power of perception!
Many of you might have seen where I tweeted “$FB will touch $50 within 10 weeks.” Sure, I admit it might have been an overzealous reaction, but my point was not necessarily the price target, rather Facebook Inc (NASDAQ:FB)‘s quarter was a perception changer!
Facebook Inc (NASDAQ:FB)’s earnings were, without question, the best I’ve seen this quarter. The company’s revenue accelerated from sub-40% to over 50% year-over-year; the company has figured out mobile; and despite these improvements, it is lowering its spending! Who does that?
In this competitive market, if you want growth, then you are going to pay for it! Not Facebook Inc (NASDAQ:FB), instead it’s penetrating mobile with success and users are staying on the site for longer periods of time. Hence, Facebook is simply sitting back and collecting dollars.
Now, back to my original statement about perception. While it may sound far-fetched, who thought that LinkedIn Corp (NYSE:LNKD) would be trading at $208 after it popped from $123 to $150 back in February? Moreover, who in their right mind would’ve predicted Tesla at $130 after it jumped to $90 back in May? My guess is that no one would have nor could they have logically defended such short-term price targets.
Facebook Inc (NASDAQ:FB) might have more promise than either stock, with over 1.2 billion users to monetize. Furthermore, Facebook trades at just 13.5 times sales, compared to 20.3 times sales for LinkedIn Corp (NYSE:LNKD). Therefore, when you consider the power of perception and momentum, Facebook Inc (NASDAQ:FB) is cheap, and would probably trade higher!