Turnarounds are curious things. One the one hand, by definition they are damaged goods that Wall Street has all but abandoned. On the other hand, provided you are patient and do your homework, turnarounds can be some of the most rewarding plays in finance precisely because Wall Street has a difficult time thinking more than few quarters down the road.
Mobile phone maker BlackBerry ($BBRY) couldn’t be more of a turnaround if it tried. It’s actually one of the most spectacular implosions I’ve seen in 20+ years in this business. Companies rarely develop into turnarounds through no fault of their own; in this case, $BBRY didn’t innovate fast enough to stay ahead of Apple ($AAPL), plain and simple. The red ink has flowed profusely, management has been sacked, a slew of early save-the-firm product bets have fizzled, and most investors have abandoned the stock.
Yet within the wreckage of the original company are potentially the green shoots of a newer, leaner BlackBerry focused not on competing with the next wanna-be iPhone, but on servicing the company’s die-hard user base of government and corporate power users less interested in gimmicky apps and games than in security and battery life (and who, by the way, like the keyboard).
The company’s announcement this week that fiscal third-quarter revenue was $793 million disappointed Wall Street’s expectations, and the stock took another in a long line of beatings. But the stock is already pretty washed out, and contained in the release was the news that$BBRY generated positive free cash flow of $43 million and adjusted EPS of a penny. That, folks, is what turnaround investing is all about – a shattered company able to staunch the bleeding and generate cash on lower revenue while launching new products is usually one to watch. Time will tell, of course – the risk is that new products and legacy customers aren’t enough to generate consistent growth and, ultimately, consistent profitability. But it is a glimmer that suggests this firm might not be a complete write-off just yet.
BlackBerry has 21 active ratings on Vetr.com, with an average 12-month target of $12. That said, opinions on the platform are pretty split, with 57% bullish and 43% bearish. This is contrast to Wall Street’s lone buy rating among 37 analysts and a $9.70 average price target. If you’re a contrarian, the disparity speaks volumes.
2015 is undeniably a critical year for this once-loved high-flyer. What do you think? Is Blackberry the tech turnaround of next year, or it is one keystroke away from finally succumbing to the iPhone/Android onslaught? Make a rating!
Live through enough market corrections, and you eventually learn that the stocks that lose the least during a meltdown are usually the ones that perform the best once things improve. This is especially the case when the correction is not your garden-variety pullback, but a more structural retracement. Like now.
Unsurprisingly, the decline in the stock market has ravaged trendy tech names like Google ($GOOG), Twitter ($TWTR), and Tesla ($TSLA). And equally unsurprisingly, these are among the most popular stocks on Vetr.com, which counts a fairly young and tech-savvy audience among its growing user base.
Intel ($INTC), on the other hand, has displayed tremendous relative strength. For a tech stock, Intel has certainly lost a lot of its prior sizzle; it is rarely afforded a growth-stock multiple these days, and has little of the sex appeal of more modern technology enterprises. And If Vetr.com users are any guide, investors don’t have Intel on their radar; the stock has only 14 followers on our platform, and is rated 2.5 stars (sell) across 15 ratings despite being one of 2014’s top-performing technology stocks.
Yet unloved and unfollowed Intel barely budged over the past four weeks while the broader market cratered. It is up just shy of 5% over the past three months, more than four times the S&P 500’s 0.92% gain, and it’s been a veritable rock compared to Google (-9.5%), Tesla (-18.5%) and Twitter (-24.5%) over the same period.
Keep your eye on $INTC. In my experience, stocks, especially widely-held ones, that show strong relative strength during an ugly correction are the very ones to watch going forward. As hard as it is to stomach the volatility, astute investors learn to use periods like this to uncover the companies that will lead the next upturn. Right now, $INTC is an odds-on favorite to be one of those stocks.
Wall Street is awash in pithy sayings and adages, like “sell in May and go away.” They’re the financial equivalent of old wives’ tales. However, many of them hold a grain of truth and are based on decades of hard-won experience. Bob Farrell, Merrill Lynch’s legendary market strategist, compiled a list of 10 such common sense “Rules to Remember” years ago, and they’re still considered some of the best market yardsticks around.
Farrell’s Rule #7 holds that markets are strongest when their uptrend is broadly supported, and weakest when they narrow to a handful of stocks. In other words, markets that keep going up on the strength of a decreasing number of blue-chip names are in trouble. Taken a step further, major blue chip stocks owned by everyone under the sun that suddenly diverge from a rising market are probably telling you something.
At the moment, Google ($GOOG) is telling us something.
A quick look at the chart shows that the tech giant, a member of both the S&P 500 and the NASDAQ 100, has conspicuously avoided the fall rally. In fact, GOOG has essentially been flat all year, retraced only half of the October selloff, and is down nearly 6% year-to-date vs. more than 14% for the S&P. If this were your run-of-the-mill tech stock, we’d chalk it up to a company-specific issue and move on. But Google is an institutional darling, owned by countless mutual funds, pension plans and money managers, and easily one of the most widely-held and followed securities in the world. From a markets perspective, it is important.
$GOOG’s popularity is also evident on Vetr.com. It is resident in 119 watch lists and recipient of 11 ratings (all buys), giving it an extremely strong 4 ½ stars. According to Reuters, 38 of 48 institutional analysts covering Google have ranked the stock a buy, with only 10 holds and zero sells. For what it’s worth, the average Vetr.com 12-month price target, at $635 , is a little less bullish than the average Wall Street target of $889.
Such an alignment of opinion between Vetr.com users and Wall Street analysts is unusual. Since they’re completely free of any investment-banking or similar bias, our ratings tend to be much more balanced. In this case, though, both Vetr.com and Wall Street seem to universally believe Google is going to go up, while the stock’s action during a record-setting rally suggests exactly the opposite.
It is worth noting that one of Bob Farrell’s Rule #9 says that when all the experts agree, something else is going to happen. So far #9’s been right. What do you think? Should investors believe the raters, or believe the market?