In Next Inning newsletter, technology stock guru Paul McWilliams sees weakness in Hewlett Packard (NYSE: HPQ) as an opportunity to buy "one of the best-managed large cap tech companies in the world."
"Following Mark Hurd's appointment as CEO back in 2005, we turned cautiously bullish on the shares. It didn't take long to realize that he was not only making the right decisions, but also executing them swiftly and effectively.
"Hurd hit the ground running, trimming fat and restructuring both internal and sales channel operations. The net results were rapidly growing sales, improved profitability and a much higher stock price.
"Now, in line with our earnings preview, Hewlett Packard announced results that were better than the consensus expectation of the covering analysts; HPQ also raised its full year guidance.
"However, the real news is the company's intention to purchase EDS for $13.9 billion. The news of the acquisition has knocked the stock down to a level that represents a clear value opportunity.
"In my view, this is a brilliant move by HPQ and that the negotiated price represents a solid value for HPQ. I believe this represents an opportunity for investors to buy one of the best-managed large cap tech companies in the world at a clear value price."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
That's because EDS and HP would under perform in services when it comes to profitability. EDS's bigger business earned a 1% net profit margin in the first quarter. But HP's services business generated a far higher 9% estimated net margin. Unfortunately -- for reasons described below -- the combined company will probably have lower margins.
Meanwhile, IBM's profit lagged HP's slightly -- it made an estimated 7% net margin in the first quarter in its services business. But IBM is and will remain a much bigger player. Combined, EDS and HP's services business will control 5.3% -- lagging IBM. That's because IBM controlled 7.2% of the tech-services market in 2007 while EDS was a distant second at 3% and HP was fifth, with a 2.3% share.
Sun Microsystems (NASDAQ:JAVA) has not done much right in the last few years. The company replaced founder Scott McNealy as CEO with Jonathan Schwartz who wears a ponytail and writes a blog.
The promised turnaround at Sun fell apart as the company announced lower sales and a loss. At the server firm, revenue for the third quarter of fiscal 2008 was $3.266 billion, a decrease of 0.5% as compared with $3.283 billion in the same quarter a year ago. Sun posted a net loss for the quarter of $34 million, or 4 cents per share, as compared with net income of $67 million, or 7 cents per share, last year.
Sun's plans to compete with the likes of IBM (NYSE:IBM) and other larger rivals have fallen apart. According to the company, the economy has not helped.
Sun may blame the economy, but it has run out of excuses. It will fire another 2,000 or so employees. Schwartz should be among them. The company's board should have difficulty viewing him as a viable leader, but it has made the great mistake of doing nothing.
Sun's shares traded below $14 after hours yesterday, which would put them under their 52-week low. The company's performance is humiliating and it is a sad fact that so many people have to pay for the inability of Schwartz to keep his promise of making the company a viable competitor.
Today the Booyah man himself, Jim Cramer, thinks the market is heading up. Cramer says: " It's a natural thing in this market, after a big move, to give it all back and then some. However, that has not happened this time. We have had a series of small declines, nothing monumental and we may have to recognize that we are in a new pattern where we have profit-taking but no more."
Now I happen to agree that the recent market action could potentially be a signal that we are ready to power up. After all, we have been beset with continued bad news and for the first time in five months we aren't selling off. We had a lousy employment report this past Friday and the market barely flinched. We haven't seen a triple digit down day for the DOW since the 27th of March. Since the low on the 10th of March, exactly a month ago, the market has moved up about 7%, very quietly I may add. Technically, this looks like a good set-up.
I think Cramer is great and I realize that if you constantly have to give your opinion of what the market is in store for, you are going to be wrong a high percentage of the time. The problem is that how can he go from being so bearish to becoming a bull. Just 48 hours ago he posted, " Tech Stocks Face Real Trouble."
Like Cramer today, I think that the market may be setting up for a very strong rally. Let's just hope tomorrow's post doesn't change that.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 4/10/08.
Poor Advanced Micro Devices (NYSE: AMD). The company's stock has been a terrible performer as of late, and the chip maker delivered another batch of bad news to shareholders Monday. According to the following article, AMD intends on eliminating 10% of its work force -- this translates to about 1,800 positions.
Also, business is pretty weak; AMD announced that its sales for the recent quarter would come in around 15% lighter than what was reported last year at this time. Adding insult to injury, the top line missed the expectations of analysts; Wall Street was looking for approximately $1.6 billion in net sales -- AMD thinks it will deliver $1.5 billion.
Make no mistake, AMD is suffering. As the article makes clear, the chip maker is having a hard time generating profits. AMD will be trying its best, I'm sure, to restructure its operations so that it will once again be a force to be reckoned with in the near future. But how near is near?
"VMware is a market leader in software virtualization. Companies typically do not use the full computing power of their servers, and when not in use, that server sits idle.
"Virtualization technology allows IT managers to use that underutilized capacity -- running software across the organization's entire base of servers. Thus, virtualization is a key cost-cutting technology.
"VMware has a short interest ratio of 11.7 and a freely traded float of just 50 million shares. If all those shorts try to cover, the stock looks likely to be in short supply. Meanwhile, trading at 36 times 2009 earnings estimates with a long-term growth rate of 45%, VMW doesn't look overpriced.
"Under Armour (NYSE: UA) makes clothing (along with sports equipment) targeting the athletic and outdoor-oriented market. Specifically, the company makes clothes designed to wick moisture away from the skin and keep the wearer at a comfortable temperature, regardless of weather conditions.
"Meanwhile, the stock has seen strong earnings growth despite the slowdown in consumer spending -- earnings surged 42% in the fourth quarter. And management recently announced its looking for revenues to reach $765-775 million in 2008, representing around a 27% increase over 2007 levels.
"With a forward P/E of 23 and a long-term growth rate of 25%, UA looks inexpensive. With a float of less than 32 million shares and a short interest ratio approaching 12, Under Armour looks like a prime short-squeeze candidate."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
"Apple recently took a big step out of its consumer-oriented world and into the corporate realm, one dominated by Research In Motion.
"Apple is teaming up with Microsoft to make the iPhone more 'businessy' for corporate users. Obviously, when the iPhone was launched, it was a huge success with consumers. Now, Apple is opening up the platform and making it more appealing to businesses.
"With its much-awaited iPhone software developers kit, Apple is banking on third-party software to differentiate the iPhone from the BlackBerry. The biggest challenge for Apple will be overcoming concerns about security, e-mail synching and the iPhone's high price.
"Undoubtedly, this shift into the corporate realm will take time, and it will likely be the small- and medium-sized companies that are the first to adopt the iPhone for business.
"I've been looking for an opportunity to invest in Garmin International (NASDAQ: GRMN) -- the fast growing global positioning satellite market -- for sometime now," notes wireless industry expert Nikhil Hutheesing.
The editor of The Forbes Wireless Stock Watch says, "Now, with the market rather jittery and competition picking up among GPS companies, Garmin is presenting a good opportunity." Here is his review.
"Garmin has been executing on all fronts and its revenues and earnings have been growing rapidly.While competition is picking up, the outlook for Garmin is good - yet the stock is down about 50% from where it was just a few months ago.
"Garmin International is the dominant player in global positioning satellite technology products. Many of us know Garmin's popular eTrex handheld used by hikers, and automobile systems like its StreetPilot. Garmin has become one of the largest GPS companies in the world, with a 45% market share in the U.S.
"But Garmin aims to be a lot more than just a 'GPS' company. Garmin's management is fully aware that most smart phone makers like Palm and Blackberry are encroaching on its core GPS business. Moreover, nearly every cell phone now has the capability of acting as a GPS navigation system as well.
This morning Raytheon Co. (NYSE: RTN) is reporting in more detail the role it played in last week's interception of a satellite 153 miles over the Pacific Ocean. Raytheon is one of my stock picks for the year and I have been arguing for a long time that the defense sector is one of the 'bulletproof places' to be in a shaky economy. I have also been arguing that RTN is a tech stock of the highest order.
Raytheon makes missile guidance systems among other things. Can you get more high-tech than that? Yes, you can. Why Raytheon itself also designed and built the Sea-Based X-band radar that tracked the satellite prior to the missile engagement and performed the hit assessment afterward. The radar performs the critical functions of cuing, tracking and discriminating a target.
If you want great management, you will find that RTN's is top notch too. If you are looking for a huge moat, think about this: most of the software you use in your personal or business life is pretty well entrenched, but which would you have more angst about changing, your spreadsheet software or your software for missiles? Bingo! I'm sure you got that one right.
When Hewlett-Packard Co. (NYSE: HPQ) again topped expectations for its latest fiscal quarter this week, the world's largest computer maker seemed like it could do no wrong. In addition to again besting estimates, CEO Mark Hurd again set the bar high for other tech CEOs. If Dell, Inc. (NASDAQ: DELL) CEO Michael Dell believes he's got a fierce competitor in Hurd, that would be an understatement. Hurd is everything former Dell CEO Kevin Rollins should have been and more.
But that's still not good enough for the low-key Hurd, who most likely believes that the company can still do better. After raising guidance this week for the remainder of 2008, Hurd stated that "we've got a lot of work to do here," using his famous phrase that he's used to describe various high-performing business units within the company. Hurd also dropped a hint that he won't be CEO of the world's largest computer maker forever, stating that "It's important to know when your work is done ... CEOs can stay too long." Not that Hurd is going anywhere at the moment -- he just recognizes that he'll be exiting HP at some point in the future when the time is right.
Hurd's taken a unique, nuts-and-bolts approach to his job that has flat-out worked. Instead of trumpeting vision, he focuses in on strategy and execution. Instead of chasing market share at all costs, he looks at each business unit with laser precision and pays special attention to costs. By taking care of the underlying infrastructure and nurturing all those components, success will emerge. It sure has for H-P, which seems to be outgunning competitor Dell in just about every area where the two compete. It'll be that way until Hurd retires from the company, which will probably be many years from now. Until then, H-P looks to be continually poised at the top.
Semiconductor equipment maker Applied Materials said that its fiscal first-quarter profit declined as revenue fell due to the challenging global market for its products. Sales fell 8% to $2.09 billion from $2.28 billion in the same period of 2006. The company earned $262.4 million, or 19 cents per share, down 35% from $403.5 million, or 29 cents per share.
Excluding restructuring costs and other items, adjusted earnings were $345 million, or 25 cents per share. Analysts polled by Thomson Financial had expected a profit of 20 cents per share on sales of $2.01 billion.
Shares of Applied Materials rose Tuesday and Wednesday $3.10, or about 17%, to close at $19.91. Shares have been climbing from the 52-week low of $16.13 in mid January.
Cisco's (NASDAQ: CSCO) numbers were OK. The company reported net income of $2.1 billion, or 33 cents per share, compared with $1.9 billion, or 31 cents, for the same period a year earlier. But the forecast was soft by Wall Street standards, and shares fell 8% after hours.
Over at big tech out-sourcing company EDS (NYSE: EDS), earnings fell 13% to 36 cents a shares, according toMarketWatch.
The message to the markets was clear. Both in enterprise tech consulting and enterprise tech sales the road ahead is filled with pot holes. The first half of 2008 is a period when a slowing economy is going to swallow up almost the entire technology sector. After that, no one knows.
There was some optimism on Wall Street that tech might escape a downturn because large corporations would not cut capital expenditures on large projects in their advanced data centers. Telecoms and cable companies would not slow build-outs of routers to improve their broadband capacity.
All of that thinking was a victory of hope over reason. Big tech is in for trouble.
Douglas A. McIntyre is an editor at 247wallst.com.
"Our latest buy is Matthews Asian Technology Fund (MATFX), which has been added to our Global Core and Asia-Pacific Portfolios. While there's plenty of uncertainty in global markets at the outset of 2008, the tech sector and Asia's economies both look well-positioned to weather the storm.
"The Matthews Asian Technology Fund gives you the best of both worlds. With $245 million in assets, the fund has delivered annualized returns in excess of 25% over the past five years. It invests in a mixture of both large-cap and small-cap companies, with varying degrees of exposure to 'technology.'
"Some holdings, like Chinese search engine Baidu.com and the Japanese social networking site Mixi, are pure technology plays, whereas Korea's Samsung Electronics and Japan's Sony fall into the more mature camp of consumer electronics.
"Telecom is also among the fund's biggest holdings, with China Mobile and India's Bharti Airtel among the top 10 holdings. That means the fund won't always deliver eye-popping returns, but it offers a bit more protection on the downside."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
Last week Forbes released its annual list of the fastest growing tech stocks, and it shouldn't be much of a surprise that Google Inc. (NASDAQ: GOOG) topped the list, with nearly $15 billion in sales, representing five-year sales growth of 155%, and 30% EPS growth. To make the list, companies had to have significant sales growth over the past year and five years, as well as a good earnings forecast for the next three to five years. Companies with significant legal problems or corporate governance issues were excluded.
So if, like Aaron Katsman, Georges Yared, and Jim Cramer, you are bullish on tech stocks, then there's plenty on the Forbes lists worth taking a look at.
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