Reviewing the volatile events of last week, with the market up one day and down the next, the Nasdaq composite index suffered its worst decline since 2011. So, are we in a secondary correction that begins to look like a bear market?
With the market down again Friday, a correction could be ahead in the range of 6 to 8 percent. We are due for one, and it will probably occur during the summer when the Federal Reserve begins tapering its bond-buying program and if corporate profits reach all-time highs and stocks are still expensive.
What looks like a secondary correction could become more serious if the Dow Jones industrial and transportation averages close below their previous lows. In addition, when first-quarter earnings begin to appear and corporate profits fail to satisfy investors, it could result in further declines.
Market excesses usually correct themselves as investors rotate money out of previous winners and into better values. Valuation of personal portfolios matters, and a correction could prompt the selling of blue chips as well as garbage stocks.
For now, investors should continue to watch the averages and look to upgrade portfolios on a stock-by-stock basis.
Two Town Crier “50” stocks made headlines last week.
• Intel Corp. (INTC; $26.50) reported its first-quarter earnings Tuesday, after the Town Crier’s deadline. Because of the continuous decline in PC shipments, the report shouldn’t surprise. Last year was a good year for Intel because the company made progress in alternative markets with new platforms, product launches and server designs.
Intel’s servers generate more than 20 percent of revenues and nearly 28 percent of its valuation. Growth in these segments remains important for valuation. Intel boasts a market cap of $131.73 billion and is part of the technology sector. Shares are up 3.4 percent year-to-date. Intel’s goal this year is to quadruple the number of tablets using its chips.
Last month, Intel purchased BASIS Science Inc., which specializes in wearable device technology for health and wellness applications. This move gives Intel an immediate entry into the market.
Several analysts, including TheStreet, have rated Intel stock a buy, noting the company’s strengths in multiple areas. The median target price for Intel stock is $26, with a high of $32. The stock’s dividend yield is 3.6 percent.
• Yahoo Inc. (YHOO; $33.40) is running into resistance with its recent deal with Yelp Inc. to provide business listings for internal searches on Yahoo. The feedback is generating poor reviews from small-business owners, who are moving to other Internet advertisers.
An estimated 95 percent of consumers report that they use the Internet to find local businesses, and 85 percent claim that they read online reviews. Yahoo accounted for 10.3 percent of all online searches, behind Google’s 67.5 percent and Microsoft Bing’s 18.4 percent.
Listing multiple reviews is crucial for businesses, because it provides consumers with a diverse, trustworthy opinion. The recent deal with Yelp has delivered a blow to years of positive business with Yahoo.
TheStreet rates Yahoo a buy because its strengths should outweigh its weaknesses and it may perform better than most stocks. Add to that an increase in net income, a solid financial position and a good cash flow from operations, all positives for Yahoo.
Numerous research firms have rated Yahoo stock a hold, with some deeming it a strong buy. The median target price is $40, with a high of $49.
Clyde Noel is a Los Altos Hills resident and longtime investor in stocks. Disclosure: He has both Intel and Yahoo stock in his retirement portfolio.