Technically Speaking, Earnings Roll On + Vic Wisemann’s Thoughts on: INTC, AMD, CSCO, QCOM, NVDA, DRIV and SYMC
 InvestorsObserver Featured Contributor Vic Wisemann |
As earnings season continues to roll on, you may be thinking there are no more companies worth looking at. However, a leader in the stock market's lengthy climb, technology, still has some interesting figures to report. The tech sector has already strongly outperformed the rest of the markets this year and is the reason the Nasdaq has performed so well. Technology in widely expected to continue to perform well in these tough economic conditions and this should be reflected in the upcoming earnings releases.
Last month investors heard third-quarter financial results from Intel (INTC), the world's largest semiconductor company, which kicked off the technology earnings season, with rival Advanced Micro Devices Inc. (AMD) reporting just two days later. Both companies were expected to benefit from an improving consumer PC market, and an anticipated increase in corporate demand.
Intel's report was blockbuster and the key takeaway was that the news is finally good rather than "not as bad as it could be." The company reported net income of $1.9 billion, or 33 cents per share, beating analysts’ expectations of 28 cents per share. Last year, however, profit was $2.0 billion, or 35 cents a share; so as good as thing are, they are not quite back. Sales were also above expectations coming in at $9.4 billion compared to Wall Street's forecast of $9.0 billion.
As if the good news wasn't good enough, the company also offered guidance for the fourth quarter that was stellar. INTC set a fourth quarter number of $10.1 billion versus the expected $9.9 billion, and a 62 percent gross margin. The company says a better-than-expected back-to-school shopping season gives it much better visibility into the seasonally strong fourth quarter. And it looks good, thanks to a stronger consumer and new strength from China.
Read on to see how you can still profit from technology companies this earnings season.
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. |
Things were not as rosy for AMD when they stepped up to the mike two days later. The company posted a loss of $128 million, or 18 cents per share, but it was smaller than the year-ago loss. Operating income increased to $76 million from $48 million in the previous year. Revenue fell 22 percent to $1.4 billion, but still beat analysts' expectations, driven by a strong back-to-school season.
The company also offered guidance saying it expects its product company revenue to be up modestly for the fourth quarter of 2009. AMD saw the benefit of new product transitions and stronger demand. Strong cost controls were kept in place to deliver an operating profit in the quarter. While this quarter showed an improvement in AMD's financials, the company's ability to generate meaningful returns remains unclear.
Still to come in this earnings cycle, we have another giant of the industry in Cisco Systems, Inc. (CSCO ) along with QUALCOMM Inc. (QCOM), NVIDIA Corporation (NVDA) and Digital River Inc. (DRIV).
CSCO is operating well in a highly competitive industry. The company presents a strong financial picture, including $35 billion in cash and investments and a dominant market position. The stock currently holds an S&P 4 STAR buy rating with a $28 price target. The stock is fairly valued when compared to other stocks in its industry group, but still has the potential for price appreciation. Price momentum is very strong and the stock has outperformed the market when compared to the S&P 500.
QCOM's intellectual property rights and strong service provider relations give it a solid position in the industry. The company has a healthy cash flow and little debt; therefore, its cash balance can support potentially weaker demand from customers and litigation risks related to its CDMA patents. The stock, however, may be slightly overvalued when compared to other stocks in its industry group. S&P gives the equity at a 2 STAR sell rating with a $44 price target. Recent trading activity suggests that there is a lack of upward price momentum with declining buying interest.
A review of the fundamental factors for NVDA reveals a company with a mixed financial picture. The stock appears to be fairly valued when compared to other stocks in its industry group, but still has the potential for price appreciation. The stock carries an S&P 3-STAR hold rating and a price target of $16. Price momentum has weakened and the stock has recently underperformed the market when compared to the S&P 500.
In spite of the strong fundamental picture DRIV presents, recent trading activity implies that price momentum has slowed. The stock represents a good value when compared to other stocks in its industry group. The most pressing issue for the company right now is the pending loss of its largest customer, Symantec (SYMC). Despite the loss, the company remains well-positioned for growth as more businesses move to online sales and distribution.
The technology sector has been going strong and looks poised to continue as the economy continues its subdued but continuing recovery. IT infrastructure projects put on the back burner are now being revised and implemented, which should lead to continued strength in the sector. In the coming week we will see over a hundred technology companies reporting on their September ending quarter.
The four I have brought out here are a small sampling of what we will see as these companies report. Some will totally blow us away like INTC, while others will report more muted success like AMD. But all in all, it should be another good quarter.
Looking over the companies reporting next week, CSCO stands out as a potential pre-earnings trade candidate. The company is expected to report after the market close on Wednesday with a per-share profit of 31 cents. This represents more than a 25% decrease in per-share earnings, but is in line with others in the industry.
For a hedged trade on CSCO, you may want to consider the December 22/20 Bull Put spread for a 30 cent credit. That works out to be a 17.6% return and the stock has to fall more than 6% to cause a problem. Support for the stock is around 22.58. Since its March low, the stock has found itself predominately above the 50-day moving average, which currently stands at 22.99.
Remember this is the stock market and losses are a part of the equation. Before you put any of your money at risk, be certain the trade you are looking at fits into your personal risk/reward profile. Do your homework before the trade and try to have a little fun.
If you have any additional thoughts, ideas or earnings plays on companies with consecutive capital letters in their names, 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. |