Last week's stock market saw a lot of "take the profits and run" action.
One bellwether after another reported stellar earnings of cosmic proportions, only to see its share price take a lead pipe to the proverbial kneecap. In many cases, these sudden selling events capped long periods of hectic gains. Well, when the previous owners cash in their chips and walk away, the time could be right to swoop in and buy what they're selling at steep discounts.
With that strategy in mind, these moves in the tech sector struck me as especially egregious last week:
|
Company
|
5-Day Price Change
|
Change From
52-week Low
|
CAPS Rating
(out of 5)
|
|
Advanced Micro Devices (NYSE: AMD )
|
(10.9%)
|
324%
|
**
|
|
Micron Technology (Nasdaq: MU )
|
(9.9%)
|
258%
|
***
|
|
Jabil Circuit (NYSE: JBL )
|
(7.9%)
|
406%
|
**
|
|
Western Digital (NYSE: WDC )
|
(7.4%)
|
239%
|
***
|
Source: Capital IQ, a division of Standard & Poor's.
Now, keep in mind that the general market also declined last week. The S&P 500 benchmark lost 3.9%, while the tech-heavy NASDAQ Composite fell by 3.6%. Each of these indices has been on a tear over the past year; the S&P 500 notching a 31% gain and the NASDAQ running 49% higher. My research candidates simply kick these profit-taking signals up a notch or two, making them stand out as particularly ripe for the picking in a generally inviting field.
What's the story?
Some stocks slide for a reason, but these sure didn't.
The worst thing circuit board maker Jabil did last week was declare a $0.07 dividend per share, marking the 16th quarter in a row at the exact same dividend yield. Income-seeking investors prefer to see dividends rising over the years, but a steady hand is hardly a crime.
Computer storage specialist Western Digital and archrival Seagate Technology (Nasdaq: STX ) both reported brilliant quarterly results. Seagate soared on the news and stayed strong despite a bit of a late-week sell-off, but Western Digital never got a rocket boost and then fell deep into red returns. Western Digital trades at less than 10 times trailing earnings today.
Fellow computer parts designer AMD beat every expectation and issued strong guidance, pointing to a future of steady profits replacing the quarterly losses we have become used to in recent years. Big boy Intel (Nasdaq: INTC ) took an S&P 500-sized fall, but AMD's stock took it on the chin. From my vantage point, profit-taking day traders and other shortsighted "investors" are the only culprits who make any sense here.
One exception to confirm the rule
Finally, memory chip designer Micron is a special case. This stock actually sold for good reason, but the selling action may be just a tad overheated.
Korean electronics giant Samsung settled its portion of an industry-wide patent infringement lawsuit brought by technologist Rambus (Nasdaq: RMBS ) . Samsung paid $900 million to cover the damages, possibly setting a precedent for others to follow. From that perspective, Micron's drop certainly makes sense.
However, the memory chip sector finally got its act together after years of infighting, consolidation, price wars, and a massive case of oversupply. Chip prices have stabilized and even bounced back a bit, making the entire industry profitable and sustainable once more. With a reasonably solid balance sheet that was built in the good years and never destroyed by the lean ones, Micron is poised to refill those coffers with buckets and buckets of cash in the next couple of years. Micron is a giant in a narrow market.
What's next?
So there you have it: three victims of profit-taking actions and one overcorrection on true-blue bad news.
I don't think you can go far wrong with any of these stocks right now, but Mr. Market might come to his senses and return them to better prices someday soon. Do your due diligence (and the Macarena), then make your moves, but take too long and these discounts could evaporate.
Did I miss your favorite overreaction? Spread the news and the wealth in the comments section below, if you please.
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