Can Tech Still Route Profits To Your Portfolio? + Vic Wisemann’s Thoughts on: PHM, MRO, DE, A, HPQ, AMAT, CSCO, INTC, IBM, DELL and PALM
 InvestorsObserver Featured Contributor Vic Wisemann |
As we work our way through another earnings season, the bulk of the quarter's earnings have passed with the market giving a collective yawn. Given that the fourth quarter of 2008 was not stellar, year-over-year comparisons are looked at with little comment by most analysts. The main focus has not been on the current quarter's number, but on the outlook for the next quarter and year. Stocks have a net loss since earnings season kicked off, and investors continue to wonder if the rally was for real, or if it was just a momentum-driven push that soon will fade.
Just because we are well into the season doesn't mean there are no earnings plays left to make. In the coming weeks we will hear from home builders like Pulte Homes Inc. (PHM), energy companies like Marathon Oil Corporation (MRO), industrial conglomerate Deere & Co. (DE) and technology companies Agilent Technologies Inc. (A), Hewlett-Packard Company (HPQ) and Applied Materials Inc. (AMAT).
Many companies have been putting off IT and network expenditures for some time now. It may be that corporate America will be shopping at the Cisco (CSCO) store again soon. Cisco has always been known as the plumbers of tech, building out the pipes that send information along the network and get the bits and bytes where they need to go.
Read on to see how CSCO could route some nice profits to your portfolio.
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But for the past several years, the company has been putting the pieces together for a top to bottom approach to all kinds of technology, starting with the network, focused on video as an entertainment and communications medium and offering devices up and down the food chain.
Last year was a challenging one for broader technology, so it's no surprise that it was CSCO's most aggressive acquisition and expansion year ever. In fact, Cisco has spent its way through the last five or six downturns and did so in spades again last year.
But unlike years past, this year could very likely yield a big payoff. Consumers and enterprise customers alike are embracing the opportunities the network is offering. Carriers are coming after Cisco in a big way as they build out higher speed networks to accommodate all that smart phone and netbook data traffic.
Consumers are devouring the Flip video cameras that Cisco acquired from Pure Digital last year and the company's Starent acquisition is being viewed as a stroke of genius. While the Tandberg deal hasn't closed yet and will be dilutive in its first year after it does, many expect it to deliver in a big way.
Cisco seems to be embarking on a strategy pioneered by Intel (INTC), seed the market with technology embraced by manufacturers and the enterprise, and then spend a huge amount of money getting the brand acquainted with consumers. In that respect, it's playing catch-up with more established consumer names like International Business Machines (IBM) and Hewlett-Packard (HPQ); it seems to be making enormous progress.
Meantime, with better than $30 billion in cash still on the balance sheet, Cisco's aggressive acquisition strategy will continue this year. And that has speculation growing as to who might be next in the company's crosshairs.
While Dell (DELL) has come up a number of times as a possible target, the synergies just aren't there. Same goes with Palm (PALM) as well. Cisco has bigger fish to fry, and more pieces of the broader, video on the network strategy, virtualization and smart meter green technologies. That's where many see the biggest possibilities.
Coming this week, the company will be reporting second quarter 2010 results. Analysts' estimates for the quarter range from a low of $0.34 to a high of $0.37, compared to a consensus estimate of $0.35. The consensus EPS forecast has held steady over the past week and over the past month. Of the 32 analysts making quarterly forecasts, 3 raised and 1 lowered their forecast.
Over the last five complete years, fiscal years 2004 through, the sequential revenue growth has averaged approximately 3% from the first to the second quarter. This trend could continue in the current second quarter. With recent acquisitions and the company's entry into some lower margin markets, gross margins could be negatively impacted by product mix.
For a hedged trade on CSCO consider the April 19/15 bull-put credit spread for a 0.20 cent credit or better. That's potentially a 5.3% return and the stock has to fall over 15% to cause a problem.
No matter what type of trading you do, be sure it fits into your personal goals and tolerances before you put your money at risk. There is money to be made even in these difficult financial times. Do your research and have some patience, and you will see your investment pay off.
If you have had any additional thoughts, ideas or stocks reporting earnings that need to be looked at, please e-mail me at vwisemann@InvestorsObserver.com.
FREE for 90 days: Get the InvestorsKeyhole Service and our other premium investor services. Plus Over $1,000 In FREE Bonuses! CLICK HERE to begin your 90 DAYS FREE. We can make this 90 day FREE offer because we are confident you will find our service an essential part of your investing toolkit and stay a subscriber for many years to come. Our biggest risk is that we do find people cancel their subscriptions when they move to their own private islands without internet access. |