3 Real-Money Contrarian Buys for 2013


In the spirit of Christmas and giving, I plan to use the next week leading up to Christmas to continue counting down the 12 Days of Christmas in all its Foolish glory. In my rendition of this Christmas tale, you won't be hearing about turtledoves or French hens, but you will be regaled with great ways to save money in 2013 or stories about CEOs who laid rotten eggs in 2012.

In the previous "Foolish Days of Christmas," we looked at:

As always, I ask you to sing along with me: "On the third day of Christmas my true love gave to me..."

Three real money contrarian buys for 2013!

Over the two-plus years I've worked for The Motley Fool, I've received countless emails and comments questioning my resolve for thumbing-up or thumbing-down a stock in the Motley Fool CAPS database without actually having a financial position in the stocks I mention. Today, however, things are changing. I am putting my own money behind these three contrarian plays for 2013. Just to be clear, these three companies aren't endorsed by The Motley Fool, and the opinions expressed below are my own -- and, yes, I do own all three of these companies in my personal portfolio!

Dell (NAS: DELL)
I purchased shares of Dell for my portfolio the day after the release of its third-quarter results. Wall Street and investors didn't seem to care much for the PC powerhouse's results, which showed an 11% decline in total revenue and pointed to just a 2% to 5% sequential increase in sales in the fourth quarter. To make matters worse, for the first time since 2001 global PC sales are slated to fall this year (albeit by less than 1%).

However, I see big-time value in Dell shares and took the plunge for a myriad of reasons. For one, I expect the combination of Microsoft's (NAS: MSFT) Windows 8 and a new series of lighter laptops to drive a rebound in PC sales in 2013. Second, its competition has lost focus. Apple (NAS: AAPL) is moving its Mac operations to the U.S., which I feel is bound to boost production costs and Hewlett-Packard (NYS: HPQ) is too busy laying off 27,000 workers globally and reducing costs to focus on its PC line. Dell's transition into becoming a networking and service cloud-company is also progressing nicely, with networking and service sales growth of 11% in the fourth quarter. Finally, Dell was attractive on a valuation and income basis. It has $5.15 billion in net cash, pays out a yield of 3% with a payout ratio under 20%, and is valued at just six times forward earnings. That's a bargain if you ask me.

QLogic (NAS: QLGC)
Somewhat similar to Dell, QLogic, a manufacturer of specific integrated circuitry such as adapters and switches that manage computer data communication, has fallen on hard times as mainline enterprise infrastructure spending has hit a trough. Its latest quarterly report pointed to a 57% decline in profits as revenue declines were noted across all three business segments.

But just as I saw with Dell, QLogic offers investors the perfect combination of organic growth potential in data transmission as well as a hefty cash and value buffer to the downside. Two factors that really swayed my decision to purchase QLogic last month were its original equipment manufacturer, or OEM, partnerships, and how it's positioned among its peers. QLogic's OEM contracts provide stability of cash flow with some of the biggest hardware companies in the business (EMC, Cisco Systems, Oracle, and HP) counted as recurring customers. Also, timing a rebound in mainline infrastructure spending isn't important because I know at some point a spending deluge is coming and QLogic's adapters and switches will be a big part of enterprise spending .

This is where QLogic's pristine balance sheet, ripe with $484.4 million ($5.22/share) in cash and no debt put me over the top. With an enterprise value of just $418 million and at 12 times forward earnings, QLogic has me hooked.

France Telecom (NYS: FTE)
If you needed any more reason to be pessimistic about a company, how about trying to invest in one that counts the debt-ravaged European Union as its primary source of revenue? France Telecom, which derives half of its revenue from France, recently slashed its dividend to approximately 0.80 euro ($1.06) in 2012 and 2013 from 1.40 euro ($1.85) in 2011 as low-cost mobile upstart, Free Mobile, and poor austerity-induced economic conditions are expected to reduce cash flow by $1.3 billion in 2013.

Yet I see plenty of reasons why this telecom could rebound well before its underlying results show improvement in 2014. Without question, valuation and dividend income played a big role in my determination to buy. At just seven times forward earnings and with a yield of at least 9.7% based on its expected payout, it is basically cheaper on a fundamental basis, and more generous with its profits, than any international telecom company, period. I also see its majority-owned Orange brand picking up in Europe well before management expects in 2014, and building on its double-digit growth in emerging markets, to power its organic growth for years to come.

Finally, it's a simple case of cash flow. France Telecom is valued at an insanely cheap two times cash flow and can consistently produce $5 billion to $7 billion in free cash annually.

Is this company next?

The massive wave of mobile computing has done much to unseat the major players in the PC market, including venerable technology names like Hewlett-Packard. However, HP's rapidly shifting its strategy under the new leadership of CEO Meg Whitman. But does this make HP one of the least-appreciated turnaround stories on the market, or is this a minor blip on its road to irrelevance? The Motley Fool's technology analyst details exactly what investors need to know about HP in our new premium research report. Just click here now to get your copy today.

The article 3 Real-Money Contrarian Buys for 2013 originally appeared on Fool.com.

Fool contributor Sean Williams owns shares of Dell, QLogic, and France Telecom, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of Microsoft, Apple, EMC, Cisco Systems, Oracle, and France Telecom. Motley Fool newsletter services have recommended buying shares of Apple, Cisco Systems, and France Telecom, as well as creating a synthetic covered call position in Microsoft, and a bull call spread position in Apple. 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.

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