Now that the time of year where a sound bite dictates how you handle your money is here, I thought I would choose some of my favorite stocks that warrant a buy, especially if people decide to sell off their positions. Trading is fun, and I fully support its use, but it is not the only path that should be taken. A person should work to be a great short-term and long-term thinker, which involves knowing when to use which. For the whole “sell in May” philosophy, use long-term thinking to exploit any opportunities.
Here are some quick and general guidelines for the companies I picked for this list. I have to like them, think they have long-term potential, and actually see them on a multi-year path. I will aim for a three year or greater outlook.
1. Almost turned around
In the last quarter, the company had 1.5 million iPhone activations, with 43% of those new. The iPhone is still one of the most popular smartphones on the market, and having that many new subscriber activations in one quarter is impressive. Sprint Nextel Corporation (NYSE:S) is pretty aggressive, but it is coming from behind. Sprint is also focusing on prepaid plans a bit more, and I think it is testing the waters to minimize subsidies. I think phone subsidies and two year contracts are on their way out if the physical phones get any more expensive.
In the mean time, revenue growth is there, but could be slowing down. In the next few months, Sprint Nextel Corporation (NYSE:S) will add 171 cities to its existing 88 cities that have LTE, and perhaps it can more quickly expand its subscriber base.
2. Turnaround complete, growth awaits
Sirius XM Radio Inc (NASDAQ:SIRI) is a stock I recently got reacquainted with, and I like the long-term outlook for the company. There are so many opportunities open to it. Initially, the company was just a satellite radio provider to vehicles. With the proliferation of smartphones and similar devices, the company could deliver unique content through Wi-Fi. I think an on-demand model would be better, because people are not very tied to schedules when it comes to streaming. If Sirius XM Radio Inc (NASDAQ:SIRI) provides interesting content, it can make it available any time with subscription fees and possibly advertisements.
The most recent earnings had little that stuck out to me outside the numbers. I tend to hate numbers as everyone can extract the same result, and strategies and operation are far more interesting. The company focused a lot on its pre-owned car program, but I’m not really impressed. Anything like that will show up in the revenue, and I am fairly impressed with revenue growth. One interesting thing is that the company is doing a $2 billion buyback.
This was authorized at the end of 2012, but has not actually been done yet. It seems unlikely that this is being done only to return cash to controlling stakeholder Liberty Media. I think it makes more sense, considering Sirius XM Radio Inc (NASDAQ:SIRI)’ current trajectory, for Liberty to allow its controlling stake to increase as Sirius buys back other stock. Sirius has high cash flow, and more buybacks will eventually be initiated. Liberty can wait for those, unless Sirius XM Radio Inc (NASDAQ:SIRI) continues to improve.
3. Growing fast is not always a growth story
QUALCOMM, Inc. (NASDAQ:QCOM) is probably the one that is just generally a good investment rather than having a focused plan for the next few years. Mobile is still growing and evolving, which means there is still a lot of potential. QUALCOMM, Inc. (NASDAQ:QCOM) is one of the leading mobile chipmakers. The entry of Intel into the field raises some concerns, but I do not think Intel poses a lethal threat to Qualcomm. The Snapdragon chip is impressive, and I have seen the commercials that play in the movie theaters. The marketing is huge for something that people are not always aware of.
QUALCOMM, Inc. (NASDAQ:QCOM) has all the signs of a strong company. Revenue is increasing at a steady and impressive pace, with solid margins. The stock market seems overly obsessed with growth. Monumental growth is only needed to maintain a stock price if it is trading at a substantial premium. Qualcomm’s PE ratio is not outlandish, and I would not say QUALCOMM, Inc. (NASDAQ:QCOM) is fattened on a growth premium over its competitors. The company can continue to grow at a slower pace if necessary and organically grow the share price. Not every stock needs to have 15% YoY growth. Growth slowing is a part of the standard business cycle.
QUALCOMM, Inc. (NASDAQ:QCOM) is a solid company that is bringing in more and more money with solid net margins of 30%. Your patience will be rewarded with a 2% dividend yield that I expect to grow if the share price lags, because with 30% net margins, the company is almost a money machine. Growth can slow, but the strength it has built will remain. Slower growth does not mean very little growth, and it is worlds away from no growth.
Conclusion
There are never any guarantees, but this list goes from the turning around, Sprint Nextel Corporation (NYSE:S), to the mostly turnaround, Sirius XM Radio Inc (NASDAQ:SIRI), to the strong company, Qualcomm. With a multi-year approach to these stocks, you can use any entry provided by a May lull as a buying opportunity. None of these stocks are ones I have positions in, even though there are others I think have a good long-term outlook, these are the ones that strike me as being the most assured.
The article Choosing Favorites for a Contrary Buy in May originally appeared on Fool.com and is written by Nihar Patel.
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