Last updateWed, 18 Oct 2017 10am

Business & Real Estate

Buying on dips seems logical

The Dow Jones industrial average enjoyed a positive streak last week, with excellent corporate-earnings numbers and bullish economic data pushing the Dow up 0.5 percent. The solid performance confirms for investors a nearly fully invested posture and a buying-on-the-dips strategy.

The Dow climbed to a new high – the first in 2014 – finally surpassing the Dec. 31 all-time high to re-establish the bullish primary trend. The market has held together despite the downgrading of overstretched momentum stocks and those in the biotech sector.

Many market strategists predict another 5-10 percent correction for the Dow, but some of those hawks are being pessimistic. Stocks don’t appear to be overvalued, and investors should buy on the dips. The best strategy is a diversified portfolio comprising stocks of various sizes.

Two Town Crier “50” stocks made news last week.

•¬†Avago Technologies Ltd. (AVGO; $64.15) entered into a merger agreement with LSI Corp., which became a wholly owned subsidiary of Avago USA effective last month.

LSI shareholders approved the merger April 9. The cash deal is valued at $6.6 billion, with shareholders receiving $11.15 per share. The changeover is set to close by the end of June.

Avago’s acquisition of LSI gives it exposure to enterprise storage and connects it with other Silicon Valley firms.

Based in Singapore, Avago Technologies originally began in the semiconductor products division of Hewlett-Packard Co. in 1961. Avago designs, develops and supplies analog semiconductor devices with a focus on III-V-based products. The company sells products to original equipment manufacturers of wireless communications and computer peripherals markets. Wireless communications make up 48.4 percent of Avago’s revenue.

The company is trading near its all-time high and has good potential for growth within the industry. The LSI acquisition makes the company a potentially lucrative investment.

Several analysts have upgraded Avago stock to outperform, with three deeming it a strong buy since the acquisition. The mean target price for stock is $70, with a high of $78.

•¬†eBay Inc. (EBAY; $52.01) released its first-quarter results last week, reporting a loss due to a huge tax charge. To repatriate $9 billion of its overseas cash, the company must pay a $3 billion tax bill. After the announcement, the company’s stock took a hit.

The tax charge relates to freeing up approximately $6 billion in available cash in the U.S. to increase financial flexibility, but eBay officials offered no specific use for the money.

The adjusted results beat expectations because of PayPal Corp.’s online payments business. The company’s PayPal division has shown a volume growth above 29 percent for the past 17 consecutive quarters. PayPal gained 5.8 million new active accounts to end the quarter up 16 percent at $148 million.

Overcoming ongoing controversy, eBay made peace with activist investor Carl Icahn, who repeatedly urged the company to spin off PayPal, which eBay refused to do.

For the quarter ending March 31, eBay lost $2.33 billion, or $1.82 per share. Net income totaled $677 million, or 51 cents per share. Removing the $3 billion tax charge, net income totaled 70 cents per share. Revenue rose 14 percent, from $3.75 billion to $4.26 billion.

Most research firms have designated eBay stock a hold. The low target price is $55, with a high of $75. The stock is down 1 percent since Jan. 1.

Clyde Noel is a Los Altos Hills resident and longtime investor in stocks.

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