Like anything in life, investors interested in Advanced Micro Devices, Inc. (NASDAQ:AMD) and AMD stock might want to remember that you don’t have to buy it just because it’s got upside potential.
InvestorPlace’s Luke Lango’s recently pegged AMD stock at $15, citing the company’s limited revenue and earnings growth past 2020.
“Over the past 20-plus years, the market’s average price-to-earnings/growth (PEG) ratio has been roughly 1.25. Taking that as a baseline, then a fair forward earnings multiple for a 20% growth stock is 25,” Lango wrote Feb. 27. “A 25 forward multiple on 2020 earnings estimates of $0.72 implies a 2019-end price target of $18. Discount that back by 10% per year, and you get to a present value of roughly $15 for AMD stock.”
Currently trading around $12, you’re talking about 25% upside, the only question is how fast you’ll generate this return. Lango believes it could happen by the summer. If he’s right, you might want to buy AMD stock given how volatile markets have been lately.
There Are Other Options
One of the great reasons to go to Baskin-Robbins as a kid was that there were 31 flavors of ice cream to choose from.
Well, the same theory applies to stocks.
You might believe that Advanced Micro Devices stock is the best $12 investment on the public markets, but the reality is there are 15 stocks with a market cap of $2 billion or more that are trading between $11.50 and $12.50, one of those being AMD.
Twelve of those stocks make money; AMD barely does — $43 million and $179 million in 2017 on a GAAP and non-GAAP basis respectively — but it’s enough to remain in consideration.
There are some real duds amongst the group including BlackBerry Ltd (NYSE:BB), which only made a profit through the first nine months of fiscal 2018 because of arbitration awards from both Qualcomm, Inc. (NASDAQ:QCOM) and Nokia Oyj (ADR) (NYSE:NOK) totaling $683 million. Otherwise, the company would have lost $383 million in the first nine months of the fiscal year. If that’s not enough, Brian Acker, one of Canada’s most talented investment managers, recently poured cold water over BlackBerry’s results.
“[BlackBerry] doesn’t rank in my model price because they don’t have any earnings yet, three to four years on,” Finley told Business News Network in February. “When you look at the press clippings, they’re very positive, but when you look at the fundamentals of the company, there’s no earnings.”
It’s a scratch.
Hmm. This isn’t as easy as I thought it would be.
Here’s a Possibility
Currently trading around $12.16, Retail Properties of America Inc (NYSE:RPAI) is about 35 cents more expensive than AMD stock.
AMD and RPAI are two entirely different businesses, I understand; I’m merely trying to point out you don’t always have to buy the first stock you fall in love with — nor should you.
Here’s the thing: If AMD doesn’t have a short-term bump to $15 and instead retreats into single digits, which it could, you’re left holding the bag. If RPAI sputters, you’ve still got a 5.5% dividend yield to tide you over.
RPAI owns multi-tenant retail properties in major markets across the U.S. including Dallas, D.C., New York, Chicago and Seattle, which account for 62% of overall rent.
While its occupancy rate in 2017 was a little soft at 93.9%, it intends to bump it up to 95% by the end of the year. The past year was more about repositioning the REIT by selling non-essential assets to capitalize on some of the excellent properties it owns across the country.
Some of its properties faced retail casualties in 2017 and that’s going to reduce its operating funds from operations in 2018 to $1.00 per share from $1.06 in 2017. However, most of the properties have signed leases that will start paying rent by the end of the year and into 2019.
RPAI stock hasn’t done much the past five years, but it looks like it’s turning a corner.
RPAI or AMD Stock?
Crazy question, right?
However, the name of the game in investing isn’t about the sexiest investments — AMD certainly fits that description with the gamer crowd — but the ones that move up over time.
As far as $12 stocks go, my money’s on RPAI.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
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