After hitting a one-year high of $25.04 in October, the stock hit a one-year low of $8.63 in July. This morning, JAVA opened at $9.84. So far today the stock has hit a low of $9.10 and a high of $10.02. As of 12:10, JAVA is trading at $9.31, down 1.32 (-12.4%). The chart for JAVA looks bearish and improving slightly, while S&P gives the stock a bearish 2 STARS (out of 5) sell rating.
For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $11 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in eleven weeks as long as JAVA is below $11 at October expiration. Sun Micro would have to rise by more than 18.5% before we would start to lose money. Learn more about this type of trade here.
JAVA hasn't been above $11 since late June and has shown resistance around $10.15 recently. This trade could be risky if the overall market starts to rally, but even if that happens, this position could be protected by resistance JAVA might find at its 50 day moving average, which is currently around $11 and falling. Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in JAVA.
So the earnings crunch continues, and here's a look at some companies scheduled to report results this week that are anticipated to be big winners and losers in terms of earnings growth.
Analysts surveyed by Thomson Financial expect the following to report strong earnings growth when compared to the same period of the previous year.
Apache Corp. (NYSE: APA): $4.10 EPS (+53.9%) on revenue of $3.8 billion (+54.6%)
EOG Resources Inc. (NYSE: EOG): $2.34 EPS (+50.0%) on revenue of $1.7 billion (+62.2%)
Avon Products Inc. (NYSE: AVP): $0.47 EPS (+44.7%) on revenue of $2.6 billion (+11.5%)
Sun Microsystems' (NASDAQ: JAVA) preliminary numbers for the fourth quarter sparked an after-sessions rally on Tuesday. The tech entity said it should see somewhere between $3.7 billion and $3.8 billion for the top line. Earnings per diluted share will come in between $0.25 and $0.35 on a non-GAAP basis. Gross margin should be at least 44%.
Wall Street was apparently happy that Sun didn't expect an earnings bomb, according to this Reuters article. Understandable, considering the current state of the economy. It looks like Sun has an okay chance of meeting or beating earnings expectations. Reuters says that analysts are looking for 10 cents per share on a GAAP basis. Management is looking to do somewhere between 5 cents and 15 cents per share. It's too bad the range wasn't more narrow, but I guess the theme here is that if business is at least this good, then the shares are a buy.
As for me, I'm not sure I see the merit of the euphoria. Sure, things could have been worse, but that doesn't mean I want to buy Sun here. The stock has done horribly this year, losing 50% of its value year-to-date (at least before the rally). I think investors should be very careful about chasing values during these bearish times. It's hard to say how bad the recession will be, and how it will affect the tech names. Companies such as Hewlett-Packard (NYSE: HPQ) and Microsoft (NASDAQ: MSFT) have seen their stocks pressured by sellers. If the shares of those blue chips are having problems, I can't see why I'd want to chase Sun Microsystems.
Disclosure: I don't own any company mentioned; positions can change at any time.
Hewlett-Packard Co. (NYSE: HPQ) has just stolen a key global sales head from competitor Sun Microsystems Inc. (NASDAQ: JAVA). Don Grantham has joined HP as chief sales officer after resigning recently from Sun. Sun CEO Jonathan Schwartz indicated that Grantham went to HP to help that company secure a Sun Solaris license before HP's acquisition of EDS Corp. (NYSE: EDS) was completed. Schwartz was seen grinding his teeth shortly thereafter as well.
Sun, which continues to sell its servers and software quite well, but is also not growing like many of its competitors (mainly HP) is undergoing a shakeup in its DNA. The company is forming a new "Emerging Markets" sales territory to take advantage of the huge growth occurring in China, India and related countries. It's 2008 though -- this is something that should have happened a few years ago. Even Dell Inc.'s (NASDAQ: DELL) efforts last year to eke out more sales from that region have proved successful recently. Sun is just now figuring this out?
Meanwhile, Sun saw a loss in its most recent quarter, but did see growth in those regions where it is now forming a sales territory to concentrate on that area. Grantham will have ultimate responsibility for this, and if his lieutenants can implement Sun's free software model (running on Sun's servers with Sun's support) in India and China, then Sun may have some bright quarters soon. HP and Dell won't be sitting idly by though, both companies are already heavily invested in the region. Sun will have some catching up to do.
After hitting a one-year high of $25.04 in November, the stock has fallen and is trading near its year low today. This morning, JAVA opened at $12.63. So far today the stock has hit a low of $12.50 and a high of $12.85. As of 12:20, JAVA is trading at $12.66, down 48 cents(-3.6%). The chart for JAVA looks bearish and steady while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $15 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 15.6% return in five months as long as JAVA is below $15 at October expiration. Sun would have to rise by more than 15% before we would start to lose money. Learn more about this type of trade here.
JAVA hasn't been above $15 since it fell sharply in early May and has shown resistance around $12.50 recently. This trade could be risky if the company's earnings (due out in late July) are a positive surprise, but even if that happens, this position could be protected by resistance JAVA might find at its 50 day moving average, which is currently around $15 and falling.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in JAVA.
Cisco Systems (NASDAQ: CSCO) shares are falling after an analyst at Barron's expressed concern over CSCO's Q3 earnings (subscription required). In a column in Barron's, the analyst said that after considering disappointing earnings from competitor Sun Microsystems (NASDAQ: JAVA), he is worried that CSCO will not meet revenue growth expectations. CSCO reports Tuesday after market close. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on CSCO.
After hitting a one-year high of $34.24 in November, the stock hit a one-year low of $21.77 in February. This morning, CSCO opened at $26.46. So far today the stock has hit a low of $26.15 and a high of $26.71. As of 12:35, CSCO is trading at $26.32, down $0.43 (-1.6%). The chart for CSCO looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider a July bear-call credit spread above the $30 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.6% return in eleven weeks as long as CSCO is below $30 at July expiration. Cisco would have to rise by more than 14% before we would start to lose money.
CSCO hasn't been above $30 since November and has shown resistance around $27 recently. This trade could be risky if the company's earnings (due out tomorrow after the close) are a positive surprise, but even if that happens, this position could be protected by resistance CSCO might find at its 200 day moving average, which is currently around $28 and falling.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in CSCO or JAVA.
Sun Microsystems Inc. (NASDAQ: JAVA) stock is declining with the rest of the tech sector as economic indicators today have investors worried once again that the economy is headed for a recession. The Commerce Department reported that retail sales dipped by 0.6% in February, below economists' predictions of a 0.2% gain. California research firm RealtyTrac Inc. also reported that home foreclosures in February rose 59.8% over the year-ago period. Plus, some pretty bad news came from the Carlyle Group, too. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on JAVA.
After hitting a one-year high of $26.04 last March, the stock hit a one-year low of $14.20 in January. This morning, JAVA opened at $16.54. So far today the stock has hit a low of $16.35 and a high of $16.74. As of 12:35, JAVA is trading at $16.61, down %0.35 (-2.1%). The chart for JAVA looks neutral and improving, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider a July bear-call credit spread above the $20 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. This particular trade will make a 14.1% return in four months as long as JAVA is below $20 at July expiration. Sun would have to rise by more than 20% before we would start to lose money.
JAVA hasn't been above $20 since December and has shown resistance around $17.50 recently. This trade could be risky if the economy bounces back, but even if that happens, this position could be protected by resistance JAVA might find around $18, where it has topped out over the past month. Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in JAVA.
Last year, there was quite a bit of consolidation in the software sector, such as from Oracle (NASDAQ: ORCL), Microsoft (NASDAQ: MSFT) and even SAP (NYSE: SAP).
And, yes the dealmaking is continuing into 2008. For example, this week, Sun Microsystems (NASDAQ: JAVA) announced it is shelling out $1 billion for MySQL, which develops an open source database.
Well, I had a chance to interview Raven Zachary, who is the Research Director of Open Source at the 451 Group:
Why the interest in open source? What is the business model -- in light of the "free" part?
The interest in open source has been driven by end-user demand. As more open source (from operating systems to web servers to middleware to data integration to databases and beyond) is used by end-user organizations, there is an opportunity for monetization around open source. Back in 2004, we saw the beginning of a new wave on open source venture funding that has continued, peaking in 2006, but still at $300m+ per year. As this new wave of commercial open source companies build out a customer base, they become attractive targets for larger IT vendors.
Following a risk/reward reassessment, UBS AG (NYSE: UBS) decided to wind down its Switzerland-based private banking business for rich U.S. clients; the decision was announced internally in late December, but confirmed publicly this week, the Financial Times reported.
OTHER PAPERS:
According to the Economic Times, after the dissolution of a proposed joint venture with Rajesh Exports, Fossil Incorporated (NASDAQ: FOSL), the U.S. fashion accessories giant, is set to enter India on its own.
The deal includes an $800 million cash payment by Sun and $200 million in options to arrive at the billion-dollar total. MySQL CEO Marten Mickos said "Sun's culture and business model complements MySQL's own by sharing the same ideals that we have had since our foundation -- software freedom, online innovation and community and partner participation."
Sun's movement into the open-source software universe recently has signaled a huge shift in its strategy under current CEO Jonathan Schwartz.
Although Sun Microsystems, Inc. (NASDAQ: JAVA) is a leading global supplier of networked computing products, its recent history of profitability has seen its share of ups and downs. CEO Jonathan Schwartz, who is famous in the business world for his corporate blog, continues to bet the company's future on open-source software support and storage hardware.
It's working in some form, as the company reported $89 million in net income in its first fiscal quarter, starting its first string of four consecutive profitable quarters in more than 5 years.
Much of that is due to corporate belt-tightening more than gobbling up tons of sales and seeing results of strategy shifts after company co-founder Scott McNealy left the CEO position a few years ago. Still, sales have slowly gained steam as the company has ramped up its share of the computer server and storage business. It's been fast enough for most investors -- just not all.
To prop itself up in the markets, Sun performed a 1-for-4 reverse split back in December after a 16% price decline in 2007 alone. It's unclear if Sun can make enough money moving forward with the open-source strategy it now has with its Solaris software and Java software, and whether support on that software combined with hardware sales can make for future profit growth once cost cutting sees a slowdown.
Jonathon Schwartz was appointed CEO and President in April of 2006. KKR was given one board seat in January of 2007 after JAVA made a convertible $700 million private placement transaction with JAVA. JAVA January option implied volatility of 34 is below its 26-week average of 39 according to Track Data, suggesting decreasing price risk.
Daily Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Sun Microsystems (NASDAQ: JAVAD) who provide network computing infrastructure solutions that include computer systems, software, storage, and services, announced that they have added Israel as the fifth country to join their Sun Startup Essentials program. The program helps eligible start-up companies by allowing them to purchase a range of discounted Sun products and services, including the award-winning Sun Fire x64 servers and Sun Fire servers with CoolThreads technology. Program members can also work with Sun worldwide hosting partners Layered Technologies and Navisite, plus regional hosting partner NTT Europe Online, to rent discounted Web-hosting infrastructure based on Sun technologies.
Sun is doing this to plant a seed for the future. As they work with start-ups, the more successful these companies get, the more they will end up using Sun's suite of products. It seems to me that this is a brilliant program. To date, outside the United States, they run the country in China, India, U.K., and now Israel. Speaking about the reasons for starting the program in Israel, Juan Carlos Soto, vice president of Market Development at Sun, said "We hope to sign up 500 companies to the program.This country is an obvious place for Sun to expand the program into because of its strong technology sector and the fact that behind the U.S., it is the largest venture capital market in the world. Plus it has more scientists and start-ups per capita than any other country."
Looks like Sun's move is their seal of approval as to the state of Israeli ingenuity. It seems like it is alive and well.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has no position in any stock mentioned as of 12/8/07.
Here are some highlights from this past week's earnings coverage from BloggingStocks: 
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Sun Microsystems
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