Bearish activity increased for a number of large capitalization technology stocks, in an environment where the stock market is still rising. Even as bank problems in Cyprus threaten to destabilize the European markets, the Nasdaq index is up 5.6% year-to-date, as measured by the PowerShares QQQ ETF. When Apple Inc. (NASDAQ:AAPL) is equal-weighted, as measured by the Direxion Nasdaq 100 ETF (QQQE), the tech sector is up around 7.6% year-to-date, outperforming the S&P 500, which is up 5.66%:
Investors who hold widely-held technology companies could potentially outperform the broader indices by looking at rising bearish volumes. The broader market is also increasingly bearish: the Nasdaq dropped nearly 1% on March 21 2013. In the table below, companies with a sharp increase in short-selling open interest between Febr15 and Feb 28 2013 are listed in the table below:
| Ticker | NAME | Feb. 28 2013 Volume | Feb. 15 2013 Volume | Avg. Daily | % Change |
|---|---|---|---|---|---|
| AAPL | Apple Inc. | 19,432,642 | 18,778,593 | 16,174,820 | 3.50% |
| ORCL | Oracle (NASDAQ:ORCL) | 38,195,551 | 35,662,465 | 17,761,767 | 7.10% |
| BBRY | Blackberry | 147,214,984 | 136,511,698 | 45,208,011 | 7.80% |
| MSFT | Microsoft (NASDAQ:MSFT) | 97,885,936 | 83,582,893 | 41,297,496 | 17.10% |
3-Month Performance
For illustration, short-selling for Apple Inc. (NASDAQ:AAPL) shares is up 3.5%, as investors are unwilling to buy until the company releases more products to bolster profits. The challenge for Apple is that it is already a very large company, with a market capitalization of $425 billion. New phone releases based on the Android operating system, including the Nexus 4, HTC One and Samsung Galaxy S4, will likely pressure sales for the iPhone 5.
Apple’s share price will be dominated by sentiment, so predicting its direction in the short-term will be difficult.
More predictable investment opportunities lie with the following three companies.
1) Oracle
Investors correctly bet against shares of Oracle Corporation (NASDAQ:ORCL) between February 15 and February 28, 2013 by increasing short-selling open interest to 38.2 million shares. Oracle blamed competition from cloud apps for hurting quarterly results. Evercore, Pac Crest, and CLSA were bearish on Oracle following the quarterly report. Only UBS was bullish, calling the sell-off a buying opportunity.
New software license and cloud subscription sales declined by 2% compared to last year. Last quarter, sales rose 17%. Hardware sales fared worse: sales dropped 23%.
In its third quarter, Oracle Corporation (NASDAQ:ORCL) said it earned $0.65 per share (non-GAAP) on revenue of $8.97 billion. The consensus expectation was $0.66 per share on revenue of $9.37 billion. Oracle forecasts revenue for the fourth quarter to be negative 1% to positive 4%, and earnings of between $0.85 and $0.91 per share.
2) BlackBerry
Much to the chagrin of short-sellers, BlackBerry shares are rising, up 36% in 2013, as short-interest rose 7.8% to 147.2 million shares. Short float represents a whopping 34.6%. Positive developments are supporting BlackBerry ahead of its earnings report on March 28 2013. Incidentally, the device will be made available on Verizon on the same day BlackBerry reports. BlackBerry said that 30,000 apps were added to App World in the last seven weeks. App World now has 100,000 apps.
In the U.S., the Department of Defense (DoD) issued an RFP for a mobile management platform solution in October 2012. A decision is due around May, in which the DoD will decide which devices it will order. The DoD currently has 470,000 BlackBerry phones deployed, 41,000 Apple Inc. (NASDAQ:AAPL) iOS devices, and 8,700 Android devices.
3) Microsoft
Investors turned increasingly bearish on Microsoft, increasing their open short position by 17.1% to 97.89 million shares. Microsoft pays a healthy 3.27% yield, and shares continue to trend upward in 2013. Weakness in Windows 8 sales is holding back its share price. Investors also forget that a next-generation Xbox is on its way, while Windows Phone 8 sales are slowly but surely picking up.
In the tablet space, Surface sales are light: sources told Bloomberg that around 1.5 million tablets were sold, and that there may the same number of units in inventory. The more powerful Intel-based Surface Pro sold 400,000 units so far. This should be considered solid, since the Pro was only released a month ago.
Bottom Line
The three companies all represent a tremendous buying opportunity for investors, though Oracle Corporation (NASDAQ:ORCL) may be one to avoid for now. Oracle’s 9.7% drop on March 21 gives an opportunity for investors to initiate a position in a very well-run company in terms of valuation. Oracle is valued at 11 times forward earnings. For now, investors might want to wait for the negativity surrounding the company to dissipate.
BlackBerry shares are approaching highs not reached since February. Since the BlackBerry 10 is only now being released in the United States, the quarterly results will only include BB10 sales from smaller regions. Expect management to be upbeat when it discusses its outlook for the newly launched device.
Microsoft is a perpetual bearish play but pays investors a dividend yielding over 3%. Windows 8 sales could continue to be light, but cash flow remains very strong. This is due to consistent server software sales and strong demand for the Office software.
The article 2 Tech Stocks to Buy, 1 to Avoid as Sell-off Risks Rise originally appeared on Fool.com and is written by Chris Lau.
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