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5 Beaten-Down Tech Stocks Poised to Rebound - 39066 views
WINDERMERE, Fla. (Stockpickr) -- Technology stocks have basically done nothing so far in 2011 when you take a look at the performance of the Nasdaq. The tech-heavy index is up just 1.2% year-to-date. That’s basically a flat performance on the year, and it shows market players have had little buying interest in technology stocks.
Many of the top technology names have been hammered in the past year. For example, take a look at the performance of BlackBerry maker Research In Motion (RIMM). This well-known tech player has been destroyed by the sellers, with the stock off by 65% on the year.
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Another popular tech stock that’s been hammered is computer hardware player Hewlett-Packard (HPQ). Shares of HPQ have traded lower by over 35% in 2011.
The carnage doesn’t stop with those two popular tech names. Communication equipment maker Nokia (NOK) has lost over 35%, and network infrastructure player Juniper Networks (JNPR) has also sold off by over 35%. Computer storage device player NetApp (NTAP) has plunged by over 25% this year. I am sure you get the picture; many tech stocks have had a rough time in 2011.
That said, what if we see a rebound in the sector into the end of the year? Some of the beaten-down tech names could easily see huge moves if large institutional buyers return to the space and overwhelm the sellers. Jim Cramer recently pointed out on his “Mad Money” TV show that in the last nine of 10 years, tech has bottomed and began to inch higher between mid-September and late October.
With that in mind, it’s time to take a hard look at some beaten-down tech stocks that could rebound big from current levels.
My first beaten-down tech name that has rebound potential is semiconductor company Entropic Communications (ENTR), which designs, develops and markets systems solutions to enable connected home entertainment. The sellers have done a number on this stock in 2011, with shares off by over 50%.
Entropic has a current market cap of $496 million and an enterprise value of $356.96 million. The stock trades at a very cheap valuation, since their trailing price-to-earnings is 6.19 and their forward price-to-earnings is 11.04. Its estimated growth rate for this year is 10.9%, and for next year it’s pegged at -14.8%. This is a cash-rich company, with a total cash position on its balance sheet of $136.71 million and total debt of zero.
The way I would trade Entropic for a tech rebound play, is to buy the stock once it breaks out above $6.17 a share on heavy volume. Look for volume that’s tracking in close to or above its three-month average action of 2.4 million shares. If we get that breakout, I would then add to any long position once ETNR takes out its 200-day moving average of $7.36 a share. Target a run back towards $9.44 or possibly even higher if the bulls gain full control of this stock.
Keep in mind that this is a heavily shorted stock, with 20.9% of the tradable float currently sold short by the bears. Any near-term breakout could easily trigger a massive short-squeeze for ENTR.
Another beaten-down tech name with monster upside potential is Sprint Nextel (S), a communications company offering a range of wireless and wireline communications products and services for individual consumers, businesses, government subscribers and resellers. The bears have hammered this stock lower in 2011, with shares off by over 33%.
Sprint Nextel has a current market cap of $8.36 billion and an enterprise value of $22.68 billion. The stock trades at a price-to-sales of 0.25 and price-to-book of 0.62. Its estimated growth rate for this year is 23.7%, and for next year it’s pegged at -19.5%. This is far from a cash-rich company, since the total cash position on its balance sheet is $4 billion and its total debt is $18.53 billion.
One big catalyst that could help to push Sprint Nextel higher is the fact that they now sell Apple’s (AAPL) popular iPhone smarphone. If the company can report future subscriber growth due to the new iPhone offering, then this stock could be a very attractive play from current levels.
My trading plan Sprint Nextel is to buy this stock once it trades back above its 50-day moving average of $3.03 on monster volume. That key moving average has acted as tough resistance on this stock for the past three months. A high-volume move above that level should finally trigger some big upside for the stock. Market players should look for volume that’s tracking in close to or above its three-month average action of 77.766 million shares. I would target a run back toward its 200-day moving average of $4.34 or possibly higher if we get that move.
Sprint is one of the top holdings of David Einhorn's Greenlight Capital as of the most recently reported period.
Market players should also consider ON Semiconductor (ONNN), a supplier of silicon solutions for energy electronics, for a tech rebound play. The company designs, manufactures and markets a portfolio of semiconductor components. This stock is off by over 20% so far in 2011.
ON Semiconductor has a current market cap of $3.45 billion and an enterprise value of $3.59 billion. The stock trades at a very cheap valuation, since its trailing price-to-earnings is 12.85 and its forward price-to-earnings is 8.37. Their estimated growth rate for this year is 4.5% and for next year it’s pegged at -1.10%. This is not a cash-rich company, with a total cash position on its balance sheet of $872 million and total debt of $1.29 billion.
The way I would play this beaten-down semiconductor player, is to buy the stock once it breaks out above some past overhead resistance at $8 to $8.50 a share on heavy volume. Look for volume that’s tracking in close to or above its three-month average action of 8.71 million shares. I would like to point out that volume today has already hit 16.5 million with the stock up 9%. We could be seeing the early stages of an ONNN rebound already underway.
I would target a run back towards the 200-day moving average of $9.40 a share if this stock breaks out soon. If that level is then taken out with volume, look for this stock to make a much bigger run at its 52-weeek high of $11.95 a share.
One beaten-down tech play in the communications complex is Leap Wireless (LEAP), a wireless communications carrier that offers digital wireless services in the U.S. under the Cricket brand. Leap’s Cricket service offerings provide customers with unlimited wireless services for a flat rate without requiring a fixed-term contract or a credit check. The bears have smashed this stock in 2011, with shares off by over 30%.
Leap Wireless has a current market cap of $668.52 million and an enterprise value of $3.14 billion. The stock trades at a price-to-sales of 0.22 and a price-to-book of 0.84. Its estimated growth rate for this year is -10.8%, and for next year it’s pegged at 41.1%. This is not a cash-rich company, since the total cash position on its balance sheet is $724 million and its total debt is $3.23 billion.
My trading plan for this stock is to be a buyer off any weakness and anticipate a big breakout over $10 a share. Simply use a mental stop near $8 in case this stock isn’t ready to break out in the near future. If we get that breakout over $10 with high volume, then I would add to the position once it takes out the 200-day moving average of $12.46 with volume. Look for volume on both moves that tracks on close to or above its three-month average action of 2.84 million shares. Target a run back toward $15 a share if the bulls gain control of this stock.
This stock has an extremely high short interest since 17.5% of the tradable float is currently sold short by the bears. The short-sellers have also been increasing their bets from the last reporting period by 9.4%, or by about 1.16 million shares. Any near-term breakout could trigger some solid short-covering, so keep this name on your radar.
One final tech play that has been beaten-down this year and potentially has huge upside potential is Stec (STEC), a global provider of enterprise-class Flash-based solid-state drives that are designed for enterprise-class hardware that companies use to retain and access their critical data. The sellers have hammered this stock in 2011, with shares off by over 45%.
Stec has a current market cap of $584.73 million and an enterprise value of $367.83 million. The stock trades at a very cheap valuation, with a trailing price-to-earnings of 10.81 and a forward price-to-earnings of 13.82. Its estimated growth rate for this year is 10.1%, and for next year it’s pegged at 7.9%. This is a cash-rich company, with a total cash position on its balance sheet of $213.29 million and total debt of zero.
Two companies that operate in a similar sector as Stec -- OCZ Technology Group (OCZ) and Fusion-IO (FIO) -- have recently reported monster quarters and have seen their stocks soar significantly higher. I think Stec is next up to see its share price soar and to potentially see a very strong earnings report.
The way I would trade this name, is to be a buyer once it breaks out above its nearest overhead resistance level of $12 a share on heavy volume. Look for volume that’s tracking in close to or above its three-month average action of 1.6 million shares. If that breakout triggers on high volume, then I would target a move towards its 200-day moving average of $15.82.
The bears love this stock since the current short interest as a percentage of the float stands at a very large 26.1%. I expect a big short-squeeze to kickoff if Stec breaks out in the coming days or weeks. Keep this name on your trading radar.
I also flagged Stec recently as a potential earnings short-squeeze play.
To see more beaten-down technology stocks, check out the Beaten-Down Technology Stocks portfolio on Stockpickr.
-- Written by Roberto Pedone in Winderemere, Fla.
At the time of publication, author had no positions in stocks mentioned.
Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.