Winners & Losers: Tech Investing Special Report, Part III

by Brad Moon | May 10, 2013 1:27 pm

This is the final installment of a three-part special series on investing in consumer tech. Be sure to read all about big trends in the tech world[1], and about possible disruptors in the space[2].

There are hundreds of technology companies that could benefit from trends and/or disruptors in 2013 with a big resulting upside in their stock. Many others could take a hit, becoming a buying opportunity. Here are a few of the prominent ones to keep an eye on this year.


Apple’s (NASDAQ:AAPL[3]) stock price could continue to struggle. Apple faces increased competition for all its existing products; industry-best margins will take a hit if the company is forced to lower prices to boost sales; and it risks the buying public (and investors) tiring of the current game plan of releasing products that are upgrades rather than all-new. Apple has also been reduced to chasing other companies like Amazon (NASDAQ:AMZN[4]), Google (NASDAQ:GOOG[5]) and Samsung (PINK:SSNLF[6]) instead of being the one that sets the trends — consider that it released a smaller iPad and a bigger iPhone in 2012.

Apple also faces challenges with a product release cycle that risks being predictable (in which case consumers hold off on purchases, causing quarterly revenue spikes and giving competitors the opportunity to steal thunder with preemptive releases), but also causes consumer backlash when Apple tries to mix it up and people end up buying a “new” iPad a few days before the surprise release of a replacement.

But if the new iPhone is a hit (and not just a modest improvement), if Apple figures out China or one of its possible disruptive plays (gaming in living room, iWatch or Apple television) launches, its stock price could recover or even stage a repeat of its impressive run through much of 2012. Whatever happens, Apple will remain popular and an industry leader, with massive sales.


The BB10 launch that was intended to herald the beginning of the former Research In Motion’s resurgence didn’t turn out quite the way they planned. If new BlackBerry (NASDAQ:BBRY[7]) devices had been U.S.-ready at launch, that might have been different, but it lost some momentum and now finds itself preparing for all-important U.S. launches that will find it competing for attention against similar events for smartphones like Samsung’s Galaxy S 4. With the recent U.S. launch of the Z10 and the highly anticipated Q10 (with physical keyboard), BlackBerry could turn things around in 2013, cement third place in the mobile platform wars and remain relevant. Or it could fizzle out and end up being sold off for parts — like its operating system, secure messaging system, hardware and patents.


2012 was bad for Sony (NYSE:SNE[8]). TV losses continued, the PS Vita portable gaming system tanked, PS3 sales slowed in anticipation of the pending next-generation model, tablets didn’t move and its new e-reader was a generation behind the self-lit competition. The company continued a four-year money-losing streak (down $6.4 billion in 2011), laid off 10,000 workers, sold its New York headquarters and narrowed its product focus. 2013 could be a continuation of the past few years, but there is hope. Fiscal 2012 could see it return to the black, new 4K Ultra HD TVs could turn around the price-discounting money-losing model, a new PS4 could revive console sales (boosting Vita and 4K TV sales as well) and its new tablets and new smartphones are getting good reviews.


Everyone’s watching Nokia (NYSE:NOK[9]) to see what it does in 2013. Last year it lost its crown as the world’s leading smartphone seller (to Samsung) and bet everything on Microsoft’s (NASDAQ:MSFT[10]) Windows Phone 8. That has resulted in less-than-stellar smartphone sales. The company doesn’t make bad hardware (its Lumia smartphones are generally considered to be well made, powerful and attractive, if a little heavy), so whether Nokia decides to hedge its bets and release Android smartphones or sticks with Windows could be the difference between continued sliding market share or a resurgence. Its stock is down 77% over the past three years, so if Lumia phones take off after the rocky 2012 launch (and there’s a new, slimmer 928 model[11] due out soon), there’s plenty of potential upside for investors.


The PC giant was on a product release roll toward the end of 2012, and while not everything did well out of the gates — Surface RT, Windows 8 and Windows Phone 8 being prime examples — 2013 could be the payoff year. If adoption picks up for Windows 8, Surface Pro (and possibly RT) and Office 2013, Microsoft could be in for a high revenue year, after a cycle of consumers and business customers holding off in anticipation of new product versions. There’s a new Xbox due out in 2013 and rumors that after dabbling in tablets, Microsoft may release its own smartphone.


Intel (NASDAQ:INTC[12]) has suffered as its core PC market has slowed and its late entry into mobile continues to take a toll. CEO Paul Otellini announced in 2012 he would be stepping down and the company will undoubtedly be looking for a replacement who “gets” mobile. Will Intel’s Ultrabook standard gain traction in 2013 (especially now that it has touchscreen capability as a requirement)? Will rumored talks with Apple result in Intel chips in iPhones and iPads? After missing the boat and losing out to ARM Holdings (NASDAQ:ARMH[13]), Qualcomm (NASDAQ:QCOM[14]) and others, will Intel crack the mobile market in a big way in 2013? If any of these pan out, Intel stock could see significant gains on the year.

Barnes & Noble

Barnes & Noble (NYSE:BKS[15]) joined the ranks of technology companies with the release of the Nook e-reader in 2009, expanding its offering into a line of e-readers and tablets. At one point (pre-Kindle Fire), the Nook tablet was the bestselling non-iPad tablet in North America[16]. Despite a $605 million investment from Microsoft in 2012, the Nook business has suffered as Amazon’s Kindle Fire, Google’s Nexus 7, then Apple’s iPad Mini ate into the small tablet market the Nook once led. The question in 2013 is will Barnes & Noble spin off the Nook unit (a deal is rumored to be in the works with Microsoft[17]), will it exit the e-reader and/or tablet market altogether or will it try to stick it out?


With bricks-and-mortar retailers like Best Buy (NYSE:BBY[18]) fighting back against “showrooming” by matching Amazon’s pricing, increased competition in the tablet space, ongoing litigation about e-book price fixing and DRM, and rumors of a Google same-day shopping service tie in to local merchants, Amazon faces many challenges in 2013. The company has invested a fortune in building up infrastructure ranging from order fulfillment warehouses to cloud data centers and makes little money selling its Kindle devices — instead counting on them to draw in buyers of its digital media (e-books, movies and music). This has translated to modest profits ($82 million profit on $16.07 billion in revenue in the first quarter) and any competition could eliminate that slim profitability.

However, the core numbers have been increasing[19]. In the first quarter, Amazon reported revenues up 22%, gross margins of 26.6% (up from 24% the previous year) but profit margin slipped to 1.1% from 1.5% a year earlier. Amazon’s investments are paying off, and 2013 could see the trend continuing.


Google Glass, tablets, Chromebooks — with its increased focus on physical products in 2012, the company needs retail stores. But it still derives the vast majority of its revenue and profit from selling online ads. 2013 is shaping up to be the year that hardware starts to be more than just a blip on Google’s balance sheet, even as the revenue from those search engine-fueled ads continues to grow at an impressive clip. In its last quarter, Google reported revenue of $11.01 billion, up 35.3% from the previous year, with net income up 15.8%.


The most recognizable social media company made the wrong kind of splash in 2012, with a disastrous IPO. Facebook (NASDAQ:FB[20]) has struggled to prove to investors that it has a formula to monetize its hundreds of millions of users in a way that justifies its share price. Constant tweaking of its service — changing its Timeline and News Feed services to be more ad-friendly and the introduction of Graph Search — may result in attracting more advertising revenue, but also risks alienating users. The company is also working to get a handle on the shift to mobile from desktop. At the same time, it’s at a mature stage in terms of adding new users and is facing the prospect that key demographics (such as the younger users that advertisers covet) may be jumping ship to other social media platforms.


If Apple was the elephant in the room last year, Samsung could well hold that spot this year. It had a string of hits in 2012, including the Galaxy S III smartphone and Galaxy Note II “phablet” and despite being sued constantly by Apple, still managed to move a ton of gear, taking the world’s top mobile phone seller crown from Nokia. It’s also got a head start in China, dominating Apple with over 30 million smartphones[21] sold in that increasingly important market in 2012 (triple the iPhone’s numbers).

Coming into 2013, the Galaxy S 4 was one of the most anticipated phones of the year, Samsung is releasing the Galaxy Note 8 tablet to directly take on the iPad Mini, other mobile manufacturers are now copying its “bigger is better” approach and it’s churning out everything from TVs to refrigerators, offering “smart” connected options for them all. Samsung — more than any other consumer electronics company — is in the position to establish a foothold in the “connected home,” starting in the living room, the pocket, the office (computer) and even the kitchen and laundry room.


Investing in technology stocks can be very rewarding — as the Nasdaq shows. But timing is everything … and staying on top of the information is critical to knowing when to buy, when to bail and when to hold on. If you bought Apple stock at the start of 2012, your investment is still above water and you own shares in a company that’s producing some of the world’s most popular consumer electronics. But if you saw the warning signs — including ho-hum reaction to the iPhone 5, slipping tablet market share, growing smartphone market saturation in the U.S. and manufacturing challenges with sophisticated new products — and sold back in September, you would have been up nearly $250 or more a share, even if you waited until the stock began its slide.

Stay informed and know the companies, trends and variables in play and you’ll make the most of your technology stock investments.

At the time of publication, Moon had no positions in the securities mentioned.

  1. big trends in the tech world:
  2. possible disruptors in the space:
  3. AAPL:
  4. AMZN:
  5. GOOG:
  6. SSNLF:
  7. BBRY:
  8. SNE:
  9. NOK:
  10. MSFT:
  11. slimmer 928 model:
  12. INTC:
  13. ARMH:
  14. QCOM:
  15. BKS:
  16. the Nook tablet was the bestselling non-iPad tablet in North America:
  17. rumored to be in the works with Microsoft:
  18. BBY:
  19. the core numbers have been increasing:
  20. FB:
  21. over 30 million smartphones:

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