Despite posting 6.7% revenue growth and beating estimates by more than 5%, shares of AMD took a pounding, falling as much as 17% following the announcement last week. This is not something that you would ordinarily see for a tech company, especially given the fact that management guided for 22% third-quarter growth, which exceeded expectations.
The reason for the decline was that despite the growth projections, margins for the new gaming consoles were 50% below Street estimates. AMD guided for 10%, while analysts were looking for 20%. Again, this was precisely what I pointed out more than two months ago -- games were not going to be enough, and margins weren't going to be there.
Today, the story has not changed, and the stock is down more than 20% since Friday. Given the company's lack of competitive leverage I can't (in good conscience) recommend these shares. If the PC industry makes a miraculous recovery, then I'll reconsider. But even during the PC boom, AMD was fighting Intel (INTC) and NVIDIA (NVDA), which, in my opinion, remain better buys today than AMD. I maintain my 12-month price target of $3.50 on these shares, which is 5% lower than where the stock is trading today.
Buy Sirius XM (SIRI)Shares of Sirius XM have been on fire all year. The stock is currently trading around $3.68 per share after having begun 2013 at a price of $2.89. In fact, if you consider the recent 52-week high of $3.77 reached on July 15, the stock has gained as much as 30% year-to-date and 109% over the past year. Remarkably, Sirius has posted these gains even as Apple and Google have entered the realm of music streaming where Pandora (P) and Spotify (among others) were already seen as threats. The Street does not seem to care, even though Apple has entered Sirius' precious domain in the automobile dashboard. I recently chronicled my love-hate relationship with this stock, while detailing both my best and worst moments as an investor. But I don't believe that it's coincidence that the stock is climbing as the company is in the midst of the $2 billion share buyback program. Not that it makes a bit of difference in terms of value, but it's important to also realize the company-initiated catalyst that is at play here. This makes buying the stock at these levels as close to a no-brainer as there can possibly be.
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