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Can Earnings Season Still Route Profits To Your Portfolio? + Vic Wisemann’s Thoughts on: CTX, PHM, MRO, VMC, HPQ, CSCO, VZ, T, GE and PG

Vic Wisemann
InvestorsObserver
Featured Contributor

As we work our way through another earnings season, the bulk of the much-anticipated second-quarter earnings has passed with the market standing on substantially stronger ground. Stocks have moved up over 12 percent since earnings season kicked off, and investors now will be turning their gaze elsewhere to see whether the rally is for real, or if it was just a momentum-driven push that soon will fade.

Just because we are winding the season down, however, doesn't mean there are no earnings plays left to make. In the coming weeks we will hear from home builders Centex Corporation (CTX) and Pulte Homes Inc. (PHM), oil giant Marathon Oil Corporation (MRO), industrial company Vulcan Materials (VMC), and technology companies Hewlett-Packard Company (HPQ) and Cisco Systems, Inc. (CSCO).

 Read on to see how this tech bellwether can route profits into your portfolio.

Cisco is the plumber of the technology world. Roughly three-quarters of its revenue comes from the routers, switches, and advanced network technologies that keep data moving day and night. The company's outlook has been buoyed by the hunger for cheap and easy video, not just from regular folks whiling away the online hours watching cats on a wheel, but from network spending and infrastructure upgrades for companies -- a market that's expected to reach $50 billion by 2013.

The growing competition over telepresence, which uses high-tech cameras and high-definition televisions to replicate meeting rooms and simulate eye contact, is a small example of the larger clash between HPQ and CSCO.

Cisco is gaining share in the high-end videoconferencing market. In the first quarter, the company sold 67% of the telepresence units sold world-wide, up from 51% of the units sold a year ago, according to estimates from Wainhouse Research. HPQ's share dropped to 10% from 11%.

As spending recovers, many analysts expect the company to benefit from sales of its Nexus line of data center switches, while its ASR edge router is taking market share from other switch vendors’ products at Verizon Communications (VZ) and AT&T (T). Sales are expected to stabilize and even show modest improvement in the order pipeline for enterprise and service provider gear and services in North America and developed Asia, with EMEA likely to lag a North American spending recovery by several quarters.

The development of Cisco's telepresence program is a shining example of how the corporate culture is changing. John Chambers, the company's CEO, argues Cisco is the best possible model for how a large, global business can operate: as a distributed idea engine where leadership emerges organically, unfettered by a central command. Chambers and his team have been sharing detailed case studies of their experiences and best practices with the likes of AT&T, General Electric (GE), and Procter & Gamble (PG), and with customers in emerging markets from Russia and China to Mexico and Brazil. "We did it first ourselves; now we teach our customers. And the neat thing about it is that they'll use our technology to do it."

For the most part, CSCO's fourth quarter is tracking ahead of expectations with improved bookings growth. The strength in the quarter can be attributed to an uptick in switching, continued success in its Advanced Technologies portfolio, and stabilization in orders for routers.

The company appears to have hit bottom in the third quarter and might now be coming up from the trough. The company also implemented aggressive expense management during the quarter, including further headcount reduction and discretionary spending cuts. Cisco could achieve the $1.5 billion cost reduction goal it laid out in the first quarter.

A hedged trade on CSCO to consider would be the September 19/16 Bull Put spread for a 20 cent credit. That's a 7.1% return and the stock has to fall over 13% 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 earned even in these difficult financial times. Do your research and have some patience, and you will see your investment pay off.