Category Archives: electronic arts

Nasdaq 100 Watch List: June 8, 2012

Below are the Nasdaq 100 companies that are within 10% of their respective 52-week lows. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and rigorous due diligence.

symbol Name Price P/E EPS Yield P/B % from Low
SYMC Symantec Corporation 14.57 9.28 1.57 - 2.06 2.17%
DELL Dell Inc. 12.12 6.92 1.75 - 2.28 2.71%
CHRW CH Robinson Worldwide Inc. 57.92 21.6 2.68 2.3 7.51 3.65%
EA Electronic Arts Inc. 13.47 58.57 0.23 - 1.75 4.74%
INFY Infosys Ltd. 43.62 14.54 3 1.3 3.81 5.36%
NVDA NVIDIA Corporation 12.12 14.8 0.82 - 1.72 5.67%
GMCR Green Mountain Coffee Roasters 23.13 11.11 2.08 - 1.76 6.25%
EXPD Expeditors Int'l of WA 39.36 22.75 1.73 1.4 3.95 6.49%
CTRP Ctrip.com Int'l 18.66 17.86 1.04 0 2.38 6.63%
SPLS Staples, Inc. 12.86 9.23 1.39 3.4 1.24 7.71%
LRCX Lam Research 37.62 16.65 2.26 - 1.72 8.07%
NFLX Netflix, Inc. 65.64 22.22 2.95 - 5.41 8.14%
WYNN Wynn Resorts Ltd. 104.21 22.1 4.72 1.9 46.53 8.76%
NTAP NetApp, Inc. 30.33 19.2 1.58 - 2.65 9.14%
MCHP Microchip Technology Inc. 32.01 19.4 1.65 4.4 3.08 9.25%
VOD Vodafone Group 26.58 12.6 2.11 7.5 1.1 9.34%
MRVL Marvell Technology 12.28 13.15 0.93 2 1.4 9.35%
ORCL Oracle Corporation 27.16 14.23 1.91 0.9 3.16 9.87%
CTSH Cognizant 58.85 19.81 2.97 - 4.14 9.92%

Watch List Summary

Of interest on our watch list is NVIDIA (NVDA).  According to Yahoo!Finance, “NVIDIA Corporation provides graphics chips for use in smartphones, personal computers (PC), tablets, and professional workstations markets worldwide.”  As we’ve described in the past, we have a strong interest in chip sector stocks and believe that the long-term prospects for companies in the chip industry is very appealing.

NVDA first appeared on our watch list on June 12, 2010.  At that time, NVDA was trading at $11.61.  By February 18, 2011, NVDA was trading as high as $25.68 which was a gain of over +120%.  We’re not certain that NVDA’s decline has ended.  According to Edson Gould’s Speed Resistance Lines, NVDA has already declined below the conservative downside target of $17.87 based on the February 2011 high.  The persistence of the current decline suggests that the stock could decline to the extreme downside target of $8.67.  We’re doing everything we can to hold off buying this stock at the current time.

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Watch List Performance Review

The following is a performance review of the top five Nasdaq 100 Watch List from June 4, 2010.  Keep in mind that this is a 2 year performance review instead of a 1 year review.

Symbol
Name 2010 2012 % change
GILD Gilead Sciences, Inc. $34.71 49.21 41.77%
SYMC Symantec Corporation $13.92 14.43 3.66%
ERTS Electronic Arts Inc. $15.81 13.07 -17.33%
APOL Apollo Group, Inc. $51.48 32.42 -37.02%
QCOM QUALCOMM $35.30 55.85 58.22%
average 9.86%
NDX Nasdaq 100 1,832.04 2,478.13 35.27%

As can you can see, the list of top five stocks significantly underperformed the Nasdaq 100 (NDX), mainly due to Apple Inc. (AAPL) having an outsized impact on the index.  However, underneath the static 2-year performance data is a story to be told, which is the basis of our New Low investment strategy.

In the chart below, take note of the period around July 2011.  At that time, Qualcomm had gains of +60%, Electronic Arts had gains of +55%, Symantec had gains of +42% and Gilead Sciences had gains of +21%.  Only Apollo Group had losses to compare against the other stocks.

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In the case of Symantec and Electronic Arts, they have come full circle after a 2-year period. This cycle is not unusual for most of the stocks that we track. Even when the stock does not approach the prior low of a watch list, many stocks attain a 52-week low after 2 to 2.5 years (as in the NVDA example above). Be on the lookout for stocks that have similar cycles like EA, SYMC and NVDA since their ability to replicated such moves adds to the prospect that they could pull a repeat performance.

Speculative Observation: Electronic Arts Inc. (ERTS) at $16.74

In after hours-trading Electronic Arts (ERTS) fell over 8% on news that the company had lower sales, wider annual loss and had to reduce full year guidance. According to Yahoo!Finance, ERTS "...develops, markets, publishes, and distributes video game software and content."

This is the perfect example of a company that was thought to have it all and possibly be recession proof. After all, 13-34 year old males were going to buy and play video games regardless of the economic environment. ERTS' stock price and company earnings, like much of the "conventional" wisdom the exists about the markets, proved to defy much of the logic.

Personally, I don't track earnings estimates since the concept of earnings is more or less an accounting interpretation that conveniently fits a corporate strategy to show profits or losses as needed. The concept of estimates of future expectations tied to the idea of earnings is a kind of mental gymnastics that I don't have the patience for. However, as part of the New Low Observer team, it is my primary responsibility to track Nasdaq 100 companies that have compelling price action at, or near, a new low.

ERTS last appeared on the New Low Observer on December 11, 2009. At the time, ERTS was within 13% of the new low after falling from the lofty levels of $61 in 2007. After being on our Nasdaq 100 Watch List for only a couple of weeks, ERTS rose 15.82% in 26 days.

ERTS hasn't had luck recovering from it's market doldrums. However, for astute market participants with a penchant for speculation, this stock may provide exceptional opportunities. When ERTS hit the ultimate low of $14.24 ( March 9, 2009) it was in the throes of a market meltdown. In this instance (March 2009 low), we could chalk up the stock price performance primarily to the "adverse" conditions of the market. This means that the price action didn't reflect the truly dire conditions of the company specifically.

Now, as we see the stock getting pummeled in after-hours, we can find comfort in knowing that investors have had the opportunity to better gauge the conditions of the company and are about to price in the worst that is yet to come. One matter that is tremendously bothersome to me regarding the situation at ERTS is that the company is trying to bury the bad news with a flood of press releases. This annoys me to no end and indicates that the company has more to hide than reveal in the latest earnings report.

Although ERTS is in free fall mode, I recommend that potential speculators jump on the best information resources at your disposal (Value Line, Morningstar and Mergent's etc.) and verify whether or not this company truly has a viable business model. My suspicion is that ERTS is an opportunity that is waiting to be capitalized upon after considerable assessment of risk tolerance and due diligence has been done. Be mindful of the prospect that this company could test the long term support level of $10. Only put money that you're willing to lose towards this "special" situation. -Touc