4 Beaten-Down Tech Stocks Rallying
So much for the day after Thanksgiving being a sleepy market day. As of 10:30 a.m. EDT, the Nasdaq is up 1.03%. Perhaps more bizarre is the series of companies that are rallying today. Across the tech space, the beaten-down laggards from the past couple years are soaring.
Just take a look at some of today's featured technology stars. Almost all have been huge winners recently in spite of horrific two-year track records.
|Company||1-Day Return||5-Day Return||2-Year Return|
|Research In Motion||12.5%||31.1%||(80.3%)|
As an intriguing parallel, these companies have seen recent rallies as Apple , the tech company which has defined the past two years, has seen its share price sink.
The reason for their rallies is pretty simple: all have been priced in a way that assigns little probability of future success. Both Nokia and Alcatel-Lucent have traded cheaply enough that it's fair to assume they were trading below the value of their patent portfolios alone. Groupon recently had traded down to a point its market cap was just $600 million above its cash. At its lows, Research In Motion was worth about $3 billion, which is just one-fifth its yearly revenue.
When stocks are priced in a way that little chance is given to their future success, any small news can send them soaring. Not only that, but as shorts pile into a stock, rallies can "squeeze" them up, putting further fuel behind gains. In the case of all these stocks above, relatively minor news has been enough to send shares soaring.
- Nokia has gone all-in on Windows Phone and has yet to see significant traction. However, initial reviews of its new Lumia line-up for the holiday season have been very positive. Not only that, but reports of cleared out inventory hint that sales could be better than expectations.
- After many delays, it looks like Research In Motion's make or break launch of BB 10 is on track for a late January launch. That's led to some analyst upgrades amid optimism the new mobile OS will stem subscriber defections.
- Alcatel-Lucent has been burning large sums of cash in recent quarters and has depleted its net-cash position. However, Bloomberg is reporting the company is in talks with Goldman Sachs to receive a new loan which will shore up its balance sheet.
- Groupon recently saw hedge fund Tiger Global take a 9.9% stake in the company. That action has brought back attention to the fact that in spite of slowing sales and business momentum, the company has managed to generate positive cash flow across the past year.
Do any of these stories alone point to a bright future for these companies? The answer is no. Optimism behind Nokia and Research In Motion's newest phones doesn't assure they'll gain enough share to become a viable third option behind Apple's iOS and Android. Alcatel's loan will give the company more time, but core business problems that have been driving negative cash flow remain. Finally, a large investment in Groupon is a positive for the beleaguered company, but it doesn't change the fact the company is slowing down in a market where business momentum matters.
That's not to say investors should run from any of these companies. However, it is a reminder that short-term rallies don't mean they've turned the corner. Even with the recent optimism, all four of these companies are still big risks. If you want to buy any of them, make sure to keep the investment small relative to your portfolio and be aware of the risks.
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The article 4 Beaten-Down Tech Stocks Rallying originally appeared on Fool.com.Eric Bleeker has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple and Goldman Sachs. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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