Look for Adobe's shares to rise one step ahead of the recovery

Posted Oct 2nd 2009 4:15PM by Joseph Lazzaro
Filed under: Adobe Systems (ADBE), Stocks to Buy

Adobe Systems is on-pace to post at least a 10-12% revenue decline in FY2009 (perhaps worse), but consistent with the dominant narrative in institutional investor circles, the Street is looking right past that to a likely, substantial increase in FY2010 revenue, not including the Omniture (NASDAQ: OMTR) acquisition, pending/subject to approvals.

And that's why I'm Reiterating my Buy rating for Adobe (NASDAQ: ADBE), first recommended on June 9, 2009 at a price of $29.77. If you bought ADBE then, you're up about 8%.

Further, it goes without saying that the U.S./global slowdown has weighed on Adobe's Creative Suite 4 results, but the company remains 'in the catbird seat' regarding rich Internet applications, and companion web-based graphics and video production tools. Cost containment is adequate. The First Call FY2009/FY2010 EPS estimates for ADBE are $1.52 to $1.71.

Technically, Adobe's short chart looks fantastic: a strong uptrend, with only minor, corrective pull-backs, and a stock price that's almost always above the 50-day moving average - the latter of which indicates institutional investors are continuing to add to their ADBE positions.

Stock Analysis: Adobe Systems is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position in ADBE now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your ADBE position before December 2009. Sell/Stop Loss if you were to buy shares in this company: $13.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: adbe, ontr