The market indexes have performed incredibly well this year despite a steady stream of "the world is ending" news from Europe and slowing growth in China. As of this past weekend, the broad-market S&P 500 had advanced nearly 14%. But it hasn't been fun and games for everyone. There are more than a handful of sectors vastly underperforming the overall market this year.
Mirrored after the two bold calls I made to begin the year, I'm jumping the gun and making three additional calls over three days in three downtrodden sectors that I expect to greatly outperform the S&P 500 in 2013. These probably aren't the most popular sectors, but big banks have had an incredibly strong year and they weren't exactly a prime selection to rebound when the year began. That selection of mine, however, has turned out quite prescient.
Over the previous two days, I've highlighted the trucking sector and the coal sector as two of my three choices to bounce in 2013. As my final contrarian call, today I'm going to highlight the personal computer space and note a few reasons why it could see a resurgence in 2013.
Why the sector short-circuited in 2012
PC's are apparently dead again. Though oft-predicted, the call of their demise has a little more merit this year, as PC unit sales are slated to fall for the first time since 2001 to 348.7 million units from 352.8 million units, according to research firm IHS. If you want someone to blame, you can partially blame Apple (AAPL -0.57%) for the popularity of its mobile and tablet devices, but those are clearly not the only culprits.
PC makers like Hewlett-Packard (HPQ -0.25%), Lenovo, and Dell (DELL.DL) have coped with a weak pricing environment as consumers continue to hold off on purchases as they wait for Microsoft (MSFT -1.84%) to deliver its new operating system, Windows 8. In addition, those that are making purchases are opting for lighter, portable tablets, or simply relying on their mobile device more.
What's going to change in 2013
Probably the biggest catalyst for PC makers in 2013 will be the release of Windows 8. The tech cycle is a nasty beast that holsters money in consumers' wallets toward the end of all product cycles, and the release of a new operating system from Microsoft should revamp laptop (and perhaps notebook) sales. That's good news not only for the PC sector, but also for Intel (INTC -1.79%), the primary provider of microprocessors used in PCs.
The introduction of new ultra-thin laptops and notebooks should also provide an impetus to boost sales. One of the main drawbacks of PCs and laptops has been their clunkiness and weight. As Apple has shown with its light MacBook Pro, sales can still be robust if the industry focus on what consumers want. As Dell, HP, and Apple focus on design, sales should improve.
Investors may also wake up and smell the value in the sector next year. If sales rebound like I suspect they will, the valuations present may be enough to intrigue deep value and income investors to take the dive. Both Dell and Hewlett-Packard offer dividends yielding north of 3% with absolutely microscopic forward P/Es of 5 for Dell and 4 for HP. The sales growth may not be huge (in fact, you might need a magnifying glass to see it), but the cash flow keeps pouring in.
My top pick: Dell
No, I have not had any alcohol as of this writing. I feel Apple has a bright future and should perform well in 2013, but based purely on PC sales, Dell offers more potential and immediate upside than the mobile-focused Apple in 2013. Dell should be able to combine consumers' want for Windows 8 with its $3.4 billion in net cash to surpass lowered Wall Street expectations and utilize its cash flow to develop even more desirable, lighter weight, products. Five times forward earnings is just too inexpensive for Dell.
The company I'd avoid: Hewlett-Packard
Let me start off by saying that I wouldn't "avoid" Hewlett-Packard necessarily; I just don't feel it will completely keep up with its peers next year. HP's turnaround is a work in progress that won't even begin to see the fruits of its cost-cutting until mid-year 2013 at the earliest, I suspect. I believe in HP, but I unfortunately am not sold on its leader, Meg Whitman. If you're in for the long haul, then I wouldn't stop you from considering HP even now, but it isn't my first choice within the sector heading into 2013.
Double-click the buy button
PC makers round out the last of three sectors that I feel are poised to bounce in a big way in 2013. What's your take on PC-makers or any of the companies or sectors mentioned in this three-part series? Share your thoughts in the comments section below with me and your Fellow fools.
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