The Motley Fool CAPS is a place where you can test your wits against fellow retail and professional investors. I began playing in the fourth quarter of 2012 and already have a player rating of 96.49 with a score of 1,174.79.
The player rating indicates how you compare against fellow players and the score is a tally of every percentage point where your selection outperforms its benchmark. Personally, I use CAPS as a way to track my own investments for disclosure purposes.
My selections are chosen based on the stock-picking formula found in my book “Taking Charge With Value Investing (McGraw-Hill, 2013).” While I have done great to-date, let’s go ahead and see what moves I am making for the following six months.
Picking up steam into the final six months
Alcatel Lucent SA (ADR) (NYSE:ALU) has posted a gain of 36.9% since adding it to My CAPS — its index has gained 15% — thus creating a score of 21.8 to My CAPS. However, I think the gains are just getting started.
Back on June 2 I wrote an article comparing Alcatel-Lucent (my 2013 Value of the Year) to Sprint Nextel (my 2012 Value of the Year) and so far the comparison is proving true. Alcatel Lucent SA (ADR) (NYSE:ALU) has gotten a late start – with all of its 40%+ YTD gains coming since the end of April – but has a lot going in its favor for the end of the year.
Not only is it the cheapest of any telecom equipment stock, but the company has a massive restructuring program in effect and is operating in an industry that is outperforming expectations. Last month Ciena Corporation (NASDAQ:CIEN) presented quarterly results that were far above expectations, citing increased telecom CAPEX due to mobile/Web traffic. If accurate, Alcatel-Lucent will benefit – making it a good play as the company continues to embark on restructuring initiatives.
Will it finally rise?
I know it lacks originality to choose Apple Inc. (NASDAQ:AAPL), but the stock really is cheap and has a lot going in its favor during the second half of the year. Not only will it release a new update to its operating system, but also is expected to unveil both a new high and low-end model iPhone.
In the process, there is iOS in the car, radio, and possibly iTV in the works. While these are exciting, let’s not forget the company’s massive $60 billion plan to return capital and buyback shares, which should create a floor for the stock. Therefore, at seven times next year’s earnings minus cash, I like its chances to be a top CAPS performer, and add to the 4.88 points that it has created for My CAPS.
Is there light at the end of the tunnel?
Shares of Hewlett-Packard Company (NYSE:HPQ) have rallied almost 75% in 2013. However, I think it could maintain this rate of return throughout the remainder of 2013.
Last quarter HP saw a double-digit rally as it upped its fiscal year 2013 EPS guidance and the company’s CEO Meg Whitman revealed a boost in the PC market. Overall, Whitman has done a fabulous job at Hewlett-Packard Company (NYSE:HPQ). The CEO has focused her attention on cash-flow and has produced fundamental improvements.
Thus, with Hewlett-Packard Company (NYSE:HPQ) currently trading at just four times last 12 month’s free cash flow, and now hinting at overall revenue growth in fiscal 2014 (ends October 2014), I think the company could continue to recover some of its 40% losses during the last 30 months.
Just sell it!
When a company’s valuation is solely related to revenue growth, and revenue growth begins to decelerate, it’s only a matter of time before that company’s valuation begins to decline as well. Such is the case with Workday Inc (NYSE:WDAY), a company with operating margins of (38.65%).
From 2012 to 2013 the company grew revenue by 105%, which was the basis of it being valued at 35 times 12 month’s sales. However, growth is decelerating. In its 2012 third quarter report, revenue grew 99% year-over-year. In the fourth quarter it grew 89% and in the first it grew just 61%.
The company is now expecting 2013 growth of 58% and growth of 50% in 2014. In my opinion, this decelerating growth is not enough to maintain such a lofty valuation, which might explain why the stock has declined 9% in the last month. If logic prevails, this decline should continue throughout the remainder of this year – and shorting Workday Inc (NYSE:WDAY) should add to the 7.9 points it has already gained in My CAPS.
Final thoughts
Today, I have presented you with four of my best ideas for the remaining six months of 2013. It’s your decision as to whether you use them for CAPS or as investment ideas, but I do think each stock is worthy of your due diligence.
Personally, I think Apple Inc. (NASDAQ:AAPL) is most attractive. I think it has the perfect balance of value, catalysts, and support with its buyback program to create the largest of gains. However, I do plan to use each of these plays as cornerstones to my next six months, both in CAPS and in my portfolio.
Brian Nichols owns shares of Apple and Alcatel-Lucent. Brian is short Workday. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple Inc. (NASDAQ:AAPL). Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Top CAPS (Investment) Ideas for the Second Half of 2013 originally appeared on Fool.com and is written by Brian Nichols.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
