Given an overbought market, earnings season, a struggling Apple (NASDAQ:AAPL) and the whole “Sell in May” phenomenon just around the corner, it’s time to start rethinking your portfolio’s holdings.
That’s especially true for holdings in the tech sector, which could prove to be more volatile in the second quarter than it was in Q1.
To help you along in the process, here are two names that require immediate action … and one more that requires no action at all.
Buy: Flextronics International
To say that Flextronics International (NASDAQ:FLEX) is a “behind the scenes” name would be an understatement — most investors likely haven’t heard of it. But the corporation will remain busy for a long time, given how many products use its components. You’ll find Flextronics’ stuff in everything from iPhones to diabetes management systems to automobile entertainment systems, and more.
Those who are familiar with Flextronics also know its year-over-year sales have fallen each of the past five quarters. So what’s so great about the company?
Within the past few weeks, FLEX has acquired Motorola Mobility Operations, announced plans to open a medical device design center and unveiled intentions to boost its automotive business in China. The additions and upgrades should gel nicely with its existing business lines.
Given all it has going for it now, not only is the forward-looking P/E ratio of 8.48 incredibly low, but it also suggest the market is really underestimating Flextronics’ turnaround story.
Bonus: FLEX shares appear to have wiggled their way — bullishly — out of a wedge pattern. This should keep the stock throttled for quite some time.
As red hot as 3D printing has become within the past year — now that 3D printer prices have fallen to the affordable $1,000 area — the industry has only scratched the surface of its potential. Yet, too many of these stocks have gotten well ahead of themselves based on the hype, and reached dangerous levels as a result.
Stratasys (NASDAQ:SSYS) is one of those overheated names. Shares are up more than 150% since the end of 2011, and that’s factoring in the 34% plunge the stock suffered in the first quarter of this year.
But isn’t SSYS one of the media’s and the market’s newest darlings, drawing nothing but bullish attention? Yes, and while the company deserves the attention, the stock doesn’t deserve its current valuation of 31 times its forward-looking earnings — it has been driven up by more hype than reality. (When the consensus seems unanimously bullish, it usually means everyone who is willing to buy already holds a position.)
The market’s starting to realize that it will be a long time before Stratasys can justify its current price — shares are putting a great deal of bearish pressure on the 200-day moving average line as a support level. If the 200-day line at $70.12 breaks down as a floor, it could trigger a selling avalanche. The risk of meltdown is just too great for the time being.
Hold: Cisco Systems
It’s unlikely that Cisco Systems (NASDAQ:CSCO) will ever relive its glory years of the late ’90s and early 2000s, when broadband Internet was becoming the norm and networking equipment was all the rage. But, rumors of Cisco’s death have been greatly exaggerated.
Cisco has finally realized that mobile Internet is the future, and software-based networking will soon upend hardware-based networking. The company has even unveiled a cloud-connection solution to make its way into this market.
Cisco is a little late to the party, and will find that its competition is already entrenched. Nevertheless, Cisco still has a name it can leverage, and its cloud-centric solutions have gotten some traction in the marketplace.
So why just a “hold” rather than a “buy”? As of the latest look, forecasters say earnings will likely grow about 8% this year, and around 6% next year. Not great … but not bad, either. It’s not enough to merit a new position for most growth-seekers, but it’s not tepid enough to merit an exit.
The company also has a penchant for beating estimates — it has topped earnings forecasts in each of the past 14 quarters, even if only by a little each time.
As of this writing James Brumley did not hold a position in any of the aforementioned stocks.