Business & Real Estate
- Published on Wednesday, 19 March 2014 01:02
- Written by Clyde Noel
As the end of the first quarter approaches, it is obvious that stocks haven’t moved much other than downward. The Dow is down approximately 1.5 percent and the S&P 500 is up slightly. After Thursday’s closing at -231.19, the talk is whether the market has peaked. Investors seem to be ignoring rising tensions in Ukraine and better-than-expected U.S. economic data.
Our exposure to the stock market relies on two things: the direction the market moves and the opportunities available in individual stocks. While finding attractive growth stocks has become difficult, a diversified portfolio continues its ups and downs, with severe losses held to a minimum.
Addressing the opportunities available in individual stocks is not clear-cut. Large companies that report modest sales growth are widely available, but relatively few are posting double-digit increases. Yet, 181 members of the S&P 500 delivered at least a 5 percent growth in per-share profits and sales in the recent quarter.
The investor who has to buy should take what the market is offering. Some of the best values can be found among companies with moderate but sustainable growth rates (see SanDisk Corp., below).
Two companies worth a look are Microsoft Corp. and SanDisk.
• Microsoft (MSFT; $38.18) was selected by numerous analysts as a safe port if an approaching storm hits the market. Microsoft is a low beta stock with a good dividend yield and more than $60 billion in net cash on hand.
With more than a $300 billion market capitalization, the company is still growing and has a new CEO as a driver. Its two cloud businesses, Windows Azure and Microsoft Office 365, generate more than $3 billion in annual revenue.
Microsoft’s new Titanfall, a console bundle released last week, demonstrates how cloud computing can become part of everyone’s lives. The new feature requires every player to play online and only on Windows-based PCs, which should boost Xbox sales.
It has been nearly five years since Microsoft updated its Office for Mac productivity, but as Mac sales continue to rise, Microsoft may renew efforts to continue its Office for the Mac suite.
Microsoft raised its dividend several times during the past five years. It presently yields 3 percent. The stock may not be as exciting as some momentum stocks, but it increased more than 30 percent last year.
Deutsche Bank upgraded Microsoft to a buy in January, while most other research firms recommended an overweight or a hold position. The median stock target price is $39, with a high of $47.
• SanDisk (SNDK; $74.96) received $28.5 million in damages for the breach of its license agreement last week in a patent infringement lawsuit against PNY Technologies. SanDisk has a portfolio of 4,900 patents relating to memory storage.
The Milpitas-based SanDisk, founded in 1988, makes flash memory for computers and other mobile devices. The increasing demand for the devices is driving profits higher each quarter.
While sales may not continue at their present level, predicted growth in per-share profits should reach 9 percent this year and 5 percent next. Profit margins have been sharply higher over the past year, which suggests future expansion. The company has 5,459 full-time employees.
SanDisk spent more than $1.1 billion on research and development last year and is currently working with Toshiba Corp. to introduce its own iteration of 3D NAND flash memory modules, including 3D NAND BICS.
While SanDisk is not listed on the Town Crier “50,” its activity warrants attention. Twenty-nine brokers are following SanDisk, with most suggesting a buy or strong buy. The median target price is $80, with a high of $100.
Clyde Noel is a Los Altos Hills resident and longtime investor in stocks, including a small investment in Microsoft and SanDisk.