3 Big Movers: Yahoo!, SanDisk, and IBM

On earnings, Yahoo! and SanDisk impress, while IBM disappoints.

Apr 20, 2014 at 11:00AM
Longview

U.S. stocks registered four consecutive days of gains during this abbreviated trading week for their best weekly gain since July, with the benchmark S&P 500 up 2.7%, closing within 1.5% of its early April record high. The narrower Dow Jones Industrial Average (DJINDICES:^DJI) and the technology-heavy Nasdaq Composite Index (NASDAQINDEX:^IXIC) both rose 2.4%. And speaking of technology shares, three well-known technology names were among the biggest movers of the week: On the upside, Yahoo! (NASDAQ:YHOO) (+10.7%) and SanDisk (NASDAQ:SNDK) (+12.7%) and, on the downside, IBM (NYSE:IBM) (-2.7%).

Images

It's earnings season, and Yahoo!'s gains this week were driven by its first-quarter results, which sent the stock up 6.3% on Wednesday alone. The portal's turnaround, led by CEO Marissa Mayer, appears to be gaining traction as the company beat Wall Street's expectations on revenue and earnings per share and, crucially, managed to grow revenues net of traffic acquisition costs for the first time in five quarters.

However, it was not Yahoo!'s results per se that financial journalists and analysts were most interested in, but rather those of Chinese e-commerce giant Alibaba, which is on the path to an highly anticipated initial public offering on the New York Stock Exchange. Yahoo owns roughly a 24% stake in Alibaba and, therefore, reports headline numbers for the company in its own report (with a one-quarter lag).

If Yahoo! exceeded expectations, Alibaba blew them out of the water with a 66% year-on-year increase in revenue in the calendar fourth quarter to $3.1 billion and a more than doubling in net income to $1.4 billion. Alibaba is expected to go public at a valuation in excess of $100 billion, and I have seen a figure of $150 billion mentioned by at least one analyst. Either way, the listing looks set to be an extravaganza that will trump Facebook's May 2012 IPO. That's not entirely surprising -- a company that controls an estimated 80% of the Chinese e-commerce market has a compelling, easily digestible story (as for the valuation, it could very well end up being entirely indigestible).

SanDisk's performance on the week was also driven by a favorable earnings report. Shares rose 9.4% on Thursday after the company reported first-quarter revenues and earnings per share that exceeded Wall Street's expectations. In particular, adjusted earnings per share of $1.55 were 15% above the $1.25 consensus estimate.

Those results in themselves were not enough to lift the shares (those earnings are already banked -- stock prices reflect expected future cash flows), but they are representative of improvements that are not a "one-off." While the company's guidance for revenues in the current quarter, a range of $1.55 billion to $1.625 billion was roughly in line with analysts' estimates, management lifted its gross margin target range for 2014 from 45% to 48% to a new range of 47% to 49%. The rate of growth in SanDisk's solid-state drive business (+61% in the first quarter!) is shifting the company toward a higher-margin product mix. Solid-state drives brought in more than a quarter (28%) of the company's revenues in the first quarter.

This isn't an area I feel comfortable investing in because of recurring heavy capital expenditure requirements and technology risk; however, SanDisk appears to have the wind in its sails right now in terms of business momentum.

Despite meeting analysts' consensus earnings estimates, IBM saw its shares decline 3.3% on Thursday. As at Yahoo!, CEO Ginni Rometty, who took over the reins of Big Blue in 2012, is attempting a turnaround of an iconic technology company. Unfortunately for Rometty, IBM was unable to produce revenue growth in the first quarter and has now missed analysts' revenue estimates for at least five consecutive quarters (the last time IBM managed to grow revenues was in the first quarter of 2012).

Rometty vowed to continue repositioning the company in growth areas including cloud computing, "big data," social, mobile, and security. The ongoing restructuring cost the company nearly $900 million in the first quarter.

Within the technology sector, I like IBM's business model, which is relatively predictable with high recurring revenues and low obsolescence risk. Furthermore, the shares' pedestrian price multiple of less than 10 times the next 12 months' earnings-per-share estimate sets a relatively low bar for operating performance. Nevertheless, to paraphrase former CEO Lou Gerstner, teaching this elephant a new dance is clearly no mean feat. Patient investors only, please.

Growth is king: 3 stocks poised to be multi-baggers
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have found multi-bagger stocks time and again. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.

Alex Dumortier, CFA, has no position in any stocks mentioned. The Motley Fool recommends Facebook and Yahoo! and owns shares of Facebook and IBM. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers