The following is a list of seven technology stocks which have posted significant losses in 2011 verses essentially flat NASDAQ composite index.
Ticker | Company | YTD Losses |
HPQ | Hewlett-Packard Company | -38.53% |
GLW | Corning Inc. | - 30.75% |
NOK | Nokia Corporation | - 52.32% |
RIMM | Research In Motion Limited | - 76.06% |
S | Sprint Nextel Corp. | - 45.39% |
YNDX | Yandex N.V. | - 48.60% |
FSLR | First Solar, Inc. | - 73.34% |
Among the above stocks, I am bearish about the prospects of RIM going forward. Research In Motion Ltd. is a designer, manufacturer and marketer of wireless solutions for the mobile communications market. RIM's portfolio includes the BlackBerry wireless solution, the RIM Wireless Handheld product line, software development tools and other software and hardware.
After Microsoft's (MSFT) deal with Nokia and Google's (GOOG) acquisition of Motorola (MMI), Research in Motion has become an orphan stock, and there are very low chances of its acquisition. Three major players will continue to dominate smartphone ecosystem in the near future: Apple (AAPL), the Nokia-Microsoft combination and the Google-Motorola combination. It will be very difficult for any other company to challenge this domination and thus every other player in the smartphone business is headed for a tough time ahead.
Nokia recently launched its S40 Asha series phones along with WP7 lumia phones. Asha series incorporates many smartphone software features into its S40 OS, including Nokia Maps, games such as Angry Birds, and a cloud-compressed browser experience important to control data usage in price-sensitive markets. Asha series products are priced well below BlackBerry products and they are likely to take a significant market share from RIM in fast-growing messaging markets such as Latin America, India, and Indonesia. This will be another blow for RIM, which is already struggling in developed markets.
Although RIM is trading below its book value, continued market share losses are a serious concern for the company. Unless there are any signs of market share stabilization, I don't think any sustainable change in stock trend can occur. I see the downside in the stock price continuing in near term.
One stock in the above list which appears to offer a good value at current levels is Yandex. Yandex is Russia's Baidu (BIDU). It is Russia's largest internet search company and has 65% traffic share and 70% revenue share. The company has an established track record of profitable expansion. I don't think the stock is expensive at 24x forward earnings when its EPS is expected to grow at 40% YoY next year. Russia is 5-8 years behind US when we compare total online advertising spend to GDP.
Thus, there is a secular tailwind which will benefit Yandex as the normalization occurs even if we do not assume any macro growth. Yandex is likely to continue posting high EPS growth for next several years and it makes a good sense to grab it at current cheap valuations.
In addition to these companies, I would also be keeping a close watch on Hewett Packard as the company is undergoing a turnaround under the new CEO. The company has a lot of positives like high portion of recurring sales, significant cost cutting levers, strong balance sheet, top-notch management, and low valuations. However I would like to see company's execution under the new leadership for next couple of quarters before forming any investment opinion.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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