If anyone had suggested that the dogs of technology would start 2013 as the best performers, you would never have believed it. While the reasons, discussed below, differ from stock to stock, the result has been the same: huge advances that have left many wondering how to play not only these stocks, but the sector. Ultimately, each of these stocks should be analyzed separately but give a strong endorsement to the sector as a whole.
Below is a brief discussion of some of the biggest turnaround names of recent months:
Dell (DELL.DL): The re-emergence of Michael Dell into the picture has driven shares of the beleaguered PC maker up nearly 31% in the past three months and over 18% in the past five days. Dell and his backers have begun to explore the possibility of a leveraged buyout that would take the company private again. Brian White of Topeka Capital Markets said: "The valuation on this stock is absolutely insulted. Michael Dell wants to change the focus of Dell without having the microscope of a public stock." A 30% premium over the price of the stock when the deal was announced, which is in line with the average premium for these types of transactions over the past several years, places the deal price at about $14.30. This target is the driving catalyst behind the stock's rise, but it should be noted that a deal this large has not been successfully completed since 2007. With that in mind, Dell looks interesting, but definitely speculative.
Hewlett-Packard (HPQ -0.46%): Whether the sudden interest in HP's Autonomy and EDS assets is driven by the leveraged buyout talk going on at Dell or not, the attention of various suitors has driven the stock higher. The potential sale is of particular interest to shareholders who have endured $16.8 billion of writedowns related to the shrinking value of EDS and the allegations HP has leveled against Autonomy surrounding financial misrepresentations. Various sources have reported that CEO Meg Whitman has made clear that she is not interested in selling either business unit. Regardless of how H-P handles the situation, however, the outside interest has been a positive catalyst for the stock. All the same, the company has a long way to go to turn the corner back to success.
Research In Motion (BB 1.80%): With the release of the Blackberry 10 slated for the end of January, RIM is squarely in do-or-die mode. If the new product line from the once-King of smartphones is not successful, it is hard to imagine how the company will survive. Over the last three months, shares have run up nearly 87%, currently hovering just below $15 per share. While early looks at the new OS have been favorable, the biggest challenge for RIM will be getting consumers to consider the device at all. The good news here is that some of the titans that the company is chasing have stumbled lately (you know who I'm talking about). For users like me, only one device away from my most recent BlackBerry, if the initial reviews are really solid, business-focused consumers may consider a BB10 option. Given the stock's recent run, the downside is real, making the stock a speculative risk to be weary of at these levels.
Nokia (NOK 0.28%): Of the four surprise winners on this list, Nokia is the one with which I am most comfortable. The company is not banking on a leveraged buyout or asset sale, and its new products are doing well. At the most recent earnings preview, the company reported that it was achieving better-than-expected results, including Lumia sales of 4.4 million units, up from the 2.9 million sold in the third-quarter. The company's partnership with Microsoft has proven successful thus far, with the Windows OS that drives the Lumia having been reasonably well received. The fact that the company has returned to profitability, and believes it will stay there in each quarter of 2013 and beyond, places it on solid footing moving forward. Overall, while the stock is still a rebound play in progress, it is solid and continues to look attractive.
So with each of these stocks riding strong up-trends, you may be wondering if the technology sector is broken. When the tech titans are struggling and the laggards are outperforming, it's easy to wonder if basic common sense exists in the sector. Ultimately, the technology sector should be one of the strongest performing areas of the market for 2013, as even under challenging economic conditions, innovation rules the day. The above four examples illustrate the strength of the sector by demonstrating how even these beaten-down options can fight back. There is no substitute for careful analysis on a stock-by-stock basis, but these four names provide a strong endorsement for the sector.
