It’s like trying to catch a falling knife in the stock market these days, especially in the tech sector, but this trio are worth your attention if you're a long-term growth investor, writes Paul McWilliams of Next Inning Technology Research.
Below are three stocks that are buys in two categories:
- A Strategic Investment is one that I believe has long-term merit;
- A Speculative Investment, on the other hand, is one that I think has upside, but lacks one or more of the ingredients necessary to qualify it as a long-term holding.
Apple (AAPL)—Strategic Investment
For the full year of 2010, the price of Apple went up 53.1%. This compares favorably with the Nasdaq, which went up 16.9%.
So far in 2011, the price of Apple is up 1.2%. This also compares favorably with the Nasdaq, which closed on June 24 essentially flat with where it opened the year.
While the price of Apple has declined about 6.5% since last January, the company's market capitalization is still comfortably above $300 billion, and it remains solidly the second most highly valued company that is traded on a major US stock exchange.
I think one of the reasons investors—and even some analysts—get carried away with such wild and unrealistic predictions of Apple hitting (say) $700 in 2011 is that they simply don’t understand numbers. The problem with really large and really small numbers is people tend to lose the ability to give them perspective, and without perspective they are difficult to understand.
At its current price of $326.35, Apple's market value is larger than the gross domestic products (GDP) of Venezuela, Finland, Thailand, Ireland, Israel, and Hong Kong. At $700 per share, the company would exceed the GDP of all but 18 countries in the world. [The stock has moved higher on Monday, and trades for around $334 at press time—Editor.]
Ironically, it’s a lack of viable competition, and the threat that AAPL could in fact double or triple its revenue and earnings, that may prove to be its biggest challenge.
When companies don’t have viable competitors and grow “too” large, governments and regulators around the world tend to find new ways to tap into the success for their “fair share” of the pie. This is the point I brought to the surface last year as AAPL’s single biggest “competitive” threat—and since then, if anything, the evidence that the threat is valid has grown.
Dell (DELL)—Speculative Investment
While Dell is still a long way from putting together a solid enough enterprise ecosystem model to compete effectively with Hewlett-Packard, IBM (IBM), or what I think Oracle (ORCL) will soon assemble, it has clearly made progress.
Between that, Dell's strong enterprise position, and what I believe will continue to be a strong corporate refresh cycle in 2011, I think the stock has the potential to move into the low $20s yet this year. [The stock is trading around $16 on Monday afternoon—Editor.]
Hewlett-Packard (HPQ)—Speculative Investment
The most important thing H-P lacks is vision and leadership. The second thing is a serious database program to address competitive threats from IBM and Oracle.
While I continue to believe the best strategy for Hewlett-Packard would be to purchase Oracle's rival SAP (SAP), I don’t think H-P should attempt that while it is in the middle of trying to establish a WebOS strategy. (WebOS is the operating system the company got when it acquired Palm.)
WebOS has very solid potential in the enterprise markets, and if H-P moves decisively and correctly, it can take advantage of Android’s fragmentation and Apple's lack of enterprise focus. Given the fact that CIOs around the world are struggling to develop mobile strategies today, the firm could leverage its already strong position to become the solution of choice.
Investors holding Research In Motion (RIMM) should keep a close eye on WebOS—if it is as successful as I see it potentially becoming, it could become a material threat to RIMM’s strong suit in the enterprise sector.
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