There were 5 stocks with high liquidity (at least 3 million daily trading volume) that had been underperforming compared to the S&P 500 between Feb. 19-22, 2013: Research In Motion Ltd (NASDAQ:BBRY), Nokia Corporation (ADR) (NYSE:NOK), Transocean LTD (NYSE:RIG), Bank of America Corp (NYSE:BAC), and Vodafone Group Plc (ADR) (NASDAQ:VOD). Of these stocks, BlackBerry and Nokia offer great turn around potentials, while the remaining three stocks are great long-term holdings with strong fundamentals. Any major pullback in stock prices should create a long-term buying opportunity for these 5 stocks.
Source: Google Finance
Research In Motion Ltd (NASDAQ:BBRY)
BlackBerry is a designer, manufacturer, and marketer of wireless solutions for the worldwide mobile communications market, providing platforms and solutions for access to information, including email, voice, instant messaging, SMS, and Internet-based applications.Research In Motion Ltd (NASDAQ:BBRY) was down 6.99% the other week and closed at $13.18 on Feb. 22, 2013. BlackBerry had been trading in the range of $6.22-$18.32 for the past 52 weeks. BlackBerry has a beta of 1.65.
On Feb. 22, 2013, MKM Partners downgraded BlackBerry from Neutral to Sell and lowered the price target from $12 to $10 citing after attributing a lower probability of success to BlackBerry 10 following the testing of the Z10 and observing BB10’s momentum stall out in the U.K. after only a few weeks. Analyst Michael Genovese decreased the probability of BB10’s success and said,
“We reduce the estimated probability that BB10 will be a success and the stock will appreciate to $40 to 10% from 15% and increase the estimated probability that BB10 will fail and the stock will decline to $7 to 90% from 85%.”
On Feb. 7, 2013, Wells Fargo upgraded BlackBerry from Market Perform to Outperform and raised its valuation range from $11-$13 to $19-$20, in transferred coverage to analyst Maynard Um. Um commented,
“Our Outperform rating is predicated on the view that gross margin will improve as the mix of BB10 devices ramps and the existing BB7 portfolio (negative gross margin) declines. We note that BlackBerry shares have generally trended in the direction of gross margin. We believe enterprise service revenue (52% of BlackBerry’s service revenue) will not be impacted materially until FY2015 given the timing of the release of the BES 10 service pack and we have already modeled the potential impact to consumer service revenue.”
Based on the two mixed analysts’ calls from MKM Partners (downgrade) and Wells Fargo (upgrade), BB10’s sales and BB10’s positive margin contribution are the critical factors to determine BlackBerry’s fair value. Although analysts are still positive about BB10, the chance of success for BB10 to lift Research In Motion Ltd (NASDAQ:BBRY) had been estimated to be lower by the latest analyst’s call from MKM Partners.
Analysts have an overall Neutral rating and an average price target of $11.81 (10.4% lower than the current price) for BlackBerry.
There are a few positive factors for BlackBerry:
Higher revenue growth (3 year average) of 18.6, vs. the industry average of -3.5
Lower P/B and P/S of 0.7 and 0.5, respectively, vs. the industry average of 2.2 and 1.6, respectively
Research In Motion Ltd (NASDAQ:BBRY) has zero total debt, and has a total cash of $2.73 billion
BlackBerry generates an operating cash flow of $3.15 billion, with a levered free cash flow of $758.62 million
Nokia Corporation (ADR) (NYSE:NOK)
Nokia is a manufacturer of mobile devices, makes a range of devices for all major consumer segments, and offers Internet services. Nokia operates in 3 segments: Devices & Services, NAVTEQ, and Nokia Siemens Networks. Nokia Siemens Networks is turning around and becoming mobile broadband focused. Nokia was down 5.25% two weeks ago and closed at $3.78 on Feb. 22, 2013. Nokia had been trading in the range of $1.63-$5.87 in the past 52 weeks. The company has a beta of 1.57.
On Feb. 15, 2013, Nordea raised its rating on Nokia to Strong Buy from Buy with a price target of €4 ($5.27). Nordea said that better availability of Lumia 820 and 510 models should rectify Q4 shipment issues. As reported, “Nordea also sees Nokia showing off new product at Mobile World Congress in Barcelona, Spain, on Feb. 25, which includes a new flagship Lumia smartphone for Verizonas well as a Windows RT tablet. Though Nokia’s royalty commitments to Microsoft exceed remaining payments due, Nordea thinks there will be limited impact with Nokia not recognizing all payments received in its P&L statement.” Looking ahead, Nordea sees Nokia hitting a break-even point in the middle of 2013.
Analysts have an overall Neutral rating with an average price target of $3.69 (2.3% lower than the current price) for Nokia.
There are a few positive factors for Nokia:
Turning around for Nokia Siemens Networks
Nokia is banking on Lumia and Asha phones for its turn around, which is gaining some momentum
Nokia has total cash of $13.43 billion, with total debt of $7.18 billion. Nokia has a book value of $2.81 per share.
Transocean LTD (NYSE:RIG)
Transocean LTD is an international provider of offshore contract drilling services for oil and gas wells, operating in two segments: contract drilling services and drilling management services. Transocean LTD (NYSE:RIG) will collect billions from customers eager to exploit large discoveries under the sea floor because it owns the world’s largest offshore drilling fleet. Transocean LTD (NYSE:RIG) was down 5.29% the other week and closed at $53.28 on Feb. 22, 2013. Transocean had been trading in the range of $39.32-$59.50 in the past 52 weeks. The company has a beta of 1.18.
On Feb. 19, 2013, DNB Markets downgraded Transocean from Buy to Hold. Howard Weil downgraded Transocean from Outperform to Sector Perform on Feb. 15, 2013. On the same day, Deutsche Bank downgraded Transocean from Hold to Sell with a price target of $49.00, and commented,
“We are lowering our rating from HOLD to SELL. While RIG has made significant progress in addressing its myriad issues, the market and its fleet may increasingly be working against it. Despite a recent update on downtime, yesterday’s fleet status report showed a 7% increase in ’13 downtime and the first estimate of 2014 downtime is up an additional 5% vs. 2013 (despite a shipyard stay being pulled into ’13 and ongoing efforts to improve revenue efficiency). Meanwhile, costs are rising even as rates are flattening. With greater visibility on its Macondo liability and greater clarity on the demands of activist Carl Icahn, most catalysts have been realized as well.”