Minyanville Professor Sean Udall dares to share the kind of keen insight and actionable information you won't find in any prospectus. For more original thought, visit www.minyanville.com.
Second, and more importantly, BRCD is paying $3 billion or almost exactly three times the cash and investments on Foundry Networks' (NASDAQ: FDRY) books. So in essence, 1/3 of the deal price is being funded by the liquidity of Foundry Networks balance sheet. Looking at the technology landscape, there are a whole bunch of companies that look like FDRY from a balance sheet perspective.
Also, this deal highlights the fact that even in a market full of angst, companies do look forward to see what business trends they want to exploit. My take is BRCD is seeing it wants a bigger part of the bandwidth pie going forward and the two companies may have complementary technology to help extend their current reach.
Speaking to friends, the $1 trillion question that keeps arising is "when do we start buying?" Astute investors, they've certainly lightened up on their exposure to stocks over the past few months and have cash sitting on the sidelines. "Are we making a bottom here?" they ask, readying themselves to start moving back into the stock market. As asset allocation and modern portfolio theory tells us, stay in the market, be diversified, and don't trade on emotion. The problem is that investors doing that since 2000 would have seen little investment returns in exchange for taking on stock market risk.
So, with this info in hand, more aggressive investors are looking to spot a bottom and make a buck along the way. So, it's interesting to read weekly Barron's article out over the weekend entitled For the Bold Investor, This Could Be the Time to Buy Tech Stocks. The article, written by one of this author's favorite journalists, Eric Savitz, looks at Oracle's (NASDAQ: ORCL) recent performance as indicative for what's happening to tech. Citing Oracle's Chief Financial Officer Safra Catz, Savitz explains that deals were getting harder to close with some business slipping into the May quarter. Tough times for tech.
So why does Barron's think we should start buying now?
Google Inc. (NASDAQ: GOOG) stock is trading lower this morning after Apple (NASDAQ: AAPL) forecast a second-quarter profit well below analysts' expectations. AAPL is now expecting a second-quarter profit of 94 cents per share, below Wall Street's expectation of $1.09 per share. The forecast worried investors, who sent AAPL's stock price way down. Along with AAPL, other tech stocks were down on fears that consumer spending will continue to decrease as the economy weakens. 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 GOOG.
After hitting a one-year low of $437.00 in March, the stock hit a one-year high of $747.24 in November. This morning, GOOG opened at $560.57. So far today the stock has hit a low of $555.56 and a high of $568.00. As of 11:05, GOOG is trading at $558.14, down $26.21 (-4.5%). The chart for GOOG looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
When my grandfather of blessed memory, Jack Miller, started teaching me about investing over 30 years ago, he explained to me that investors invest in stocks for a couple of reasons:
Potential for stock appreciation
Corporate payouts in the form of dividends
When he died earlier this year at the ripe old age of 95, he left behind an investing legacy that witnessed numerous bulls and bears, the Great Depression and many fads that came and went. He was a purist: investing in good companies at good prices. To his last days, he was still managing his portfolio and even learned to use the Internet to conduct primary research.
My own investment style tends to skew towards technology investing. Tech companies have traditionally chosen not to return money to investors in the form of dividends but rather invest corporate profits back into the company to bull-up on growth opportunities.
Barron's ran a piece today [subscription] on an interesting list that has some history. Back when I was at the hedge fund, we found a list of interesting stocks produced by boutique investment firm, B. Riley. This list, called Cash Rich Technology Stocks (CRTS), was a favorite among value investors in the technology sector.
According to Barron's, this list screens for tech stocks trading at or near net cash per share. More specifically, the CRTS looks for stocks where:
Net cash for all the companies considered was at least 35% of market cap.
Riley eliminated companies with market caps under $40 million or high cash-burn rates.
They crossed off those its analysts believed to have business models with little chance of success.
Every few years we get into a situation where the year is in its final months and there are some names that everyone knows, including the trustees of mutual funds and investors in hedge funds.
At this point you can only imagine the questioning:
"How come you didn't buy Google?"
What were you thinking when you passed on RIMM? I love my Blackberry."
"Did you think the iPhone wouldn't be big?"
Plus, you also get into this jolly analyst period where the analysts know they can please their clients by simply raising their price targets to augment their customers' performance.
It's called a virtuous circle, and Apple, Google and RIMM are at the heart of it.
Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer had no positions in stocks mentioned.
Google Inc. (NASDAQ: GOOG), Yahoo! Inc. (NASDAQ: YHOO) and many tech companies regularly promise to give reporters a sneak peak at their newest products features provided that they keep their mouths shut for a designated period of time. It's called an "embargo" and it's gotten way out of hand.
Embargos often are found on a slow Monday morning. The Yahoo announcement today that it will allow users of its email service send free text messages to mobile phones is a case in point. Reporters from AP, Reuters , and USA Today each appear to have gobbled up the press release that Yahoo's flacks spoon fed them Sunday without a glimmer of skepticism. None mentioned the deal they struck to get access to the news.
Sunday is the favorite day for embargos. Odds are that reporters will do what the companies want since their sources who might point out that this announcement isn't a big deal aren't in the office. Companies also pre-brief friendly analysts that will help them spread their message. The same idea works in mergers and acquisitions. This is how "Merger Mondays" got started. No one can manipulate the market when it's closed on Sunday. Big medical journals release research using embargos as well as well.
I don't mean to pick on Yahoo!'s announcement today. For all I know, this could be the biggest thing since sliced bread, but I doubt it. In today's media age, embargoes are becoming increasingly stupid. I can't tell you how many times I honored embargoes only to see a post on a blog about a "a big announcement coming", promising more details to come once the news was "officially" released.
Reporters -- me included -- honor these embargoes because they are worried that companies won't leak them the big news if they don't write about little things. The flacks and the journalists scratch each other's backs and the reader winds up the loser.
VMware Inc (NYSE: VMW), the server virtualization software company that EMC Corporation (NYSE: EMC) is selling a chuck of to the public, received a welcome reception from the investment community last night.
The tech offering was priced at $29, at the upper end of its price range of $27 to $29 -- which was raised from an initial price range of $23 to $25. The offering was oversubscribed by 25 times, according to news reports.
Technology-land has been without a catalyst for a while. Often tech bull markets start off with a successful IPO that piques investors' interest. Since private equity will not be driving stocks prices higher, look for IPOs, share buybacks and big dividend increases to continue to drive stock prices higher.
Twenty-five times oversubscribed suggests investors are beginning to get hungry for tech again. This has not happened in the sector in a quite a long time.
Cisco Systems, Inc. (NASDAQ: CSCO) opened at $31.00. So far today the stock has hit a low of $30.84 and a high of $31.29. As of 10:45, CSCO is trading at $31.05, down 0.35 (-1.1%).
Following a steady climb over the past several months, CSCO hit a new one year high yesterday at $32.47. Jim Cramer is still touting tech as the strongest sector on Wall Street right now, and even a giant mortgage crisis isn't going to hold back stocks like CSCO. Technical indicators for CSCO are bullish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $27.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk and leverage returns. For this particular trade, we will make a 11.1% return in less than 3 months as long as CSCO is above $27.50 at October expiration. CSCO would have to fall by more than 11% before we would start to lose money. Learn more about this type of trade here.
CSCO hasn't been below $27.50 since early July and has shown support around $29 recently. This trade could be risky if the proposed bullish tech cycle never materializes, but this stock is one that has been basically immune to the market jitters over the past few weeks.
Cisco Systems (NASDAQ: CSCO) reported its fiscal fourth quarter earnings excluding one-time items of 36 cents today following the close, one cent better than the 35 cents analysts had expected.
So far in after hours trading the stock has remained flat. Before today's earnings annoucment, Cisco rose 19 cents to $26.69, up 0.6%.
At 4:30 PM EDT the company is going to be hosting its quarterly conference call, and we will be liveblogging the call in its entirety. Be sure to check back for up- to-the-minute coverage on today's call, where we will get a little more insight into this most recent quarter.
Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.
The poster-child stocks for the last boom-bust period, the tech and telecom sector, might be the sector to hide in during the recent market volatility. Unlike the late 1990s, when telecom was loaded with debt and tech companies sold for sky-high valuations of 50 to 100x earnings, this time around things are different.
Most telecom stocks have very low debt to EBITDA levels, and many of the start ups that were able to survive went through bankruptcy or, if avoided it, were able to recapitalize their balance sheets.
The two huge service providers, Verizon and AT&T, might look particularly attractive. During Level 3's recent conference call, Jim Crowe said their problem is handling the new business, pricing is no longer an issue in the industry. If this is the case, that means Verizon and AT&T are going to make a lot of money.
Last night Qualcomm (NASDAQ: QCOM) gave the Street much more than it had expected. For the quarter, the company earned 55 cents per share (excluding its investment arm) compared with estimates of 51 cents per share. Revenues also came in above consensus -- $2.33 billion versus $2.26 billion.
Qualcomm also managed to increase expectations or average selling price of mobile phones for 2007 fiscal year ending in September from $208 to $216.
However, Wall Street still isn't completely sure about the stock's prospects, primarily due to patent litigation risks. For example, this quarter the company paid almost $20 million to Broadcom (NASDAQ: BRCM). Qualcom shares are trading down today in active trading.
The stock's valuation looks fairly in-line with comps -- cheaper than Motorola (NASDAQ: MOT) but more expensive than Cisco (NASDAQ: CSCO). Although the handset markets are very healthy, Qualcomm remains a rather risky play due to the litigation risk, as aforementioned.
All in all, Qualcomm's quarter was certainly nothing to scoff at. If litigation issues aren't raised this quarter, the stock will most likely be higher in coming months simply due to strength in its handset business as the overall fundamentals for that sector are very strong.
Profit was $818 million, or 92 cents per share, compared with $472 million, or 54 cents, a year earlier. Revenue rose to $5.4 billion. Wall Street had expected profit of 72 cents and sales of $5.28 billion. These figures are better than the 66 cent profit and $5.1 billion in sales that Apple istelf had projected, according to the Associated Press. Click here for the Bloomberg News story and here for the company's earnings press release.
Google Inc. (NASDAQ: GOOG) today disappointed investors. I'm sure that geeks from Cambridge to Silicon Valley are wondering if the world has come to an end. Let be the first to say this isn't the end of the world. In fact, it's a good way to remind people that Google is mortal.
In fact, the company's earnings were still great even if they weren't as fantastic as some had expected. Net income soared to $925.1 million, or $2.93 per share. Revenue rose 58 percent to $3.87 billion. Excluding stock-based compensation costs, profit was $3.56, about three cents below expectations. Revenue excluding so-called traffic acquisition costs was $2.72 billion, below above the $2.68 billion, analysts had expected, according to MarketWatch.
Though I'm not sure where things went wrong in this quarter, it's worth remembering that Google itself has repeatedly said growth was slowing. Its repeatedly mentioned that it plans to pour big money into the busines and that it doesn't care much about meeting quarterly numbers.
Intel Corp. (NASDAQ: INTC ) today reported second quarter results that surpassed Wall Street's already high expectations.
Net income increased to $1.28 billion, or 22 cents a share, from $885 million, or 15 cents, a year earlier while revenue advanced 8.4 percent to $8.68 billion, the Santa Clara, Calif.-based company said in a press release. Analysts had expected the company to earn 19 cents on revenue of $8,54 billion. Shares of the world's largest chipmaker at first rose in after hours but later sold off because of concerns about the gross margins.
Intel said gross margins were 46.9 percent, below the 48 percent it had targetted. That is a key metric that investors watch, so that's why the shares are off about 4 percent. Maybe they will rebound after this evenings earnings conference call.
Nonetheless, investors expect better things to come as Intel continues to gain market share at the expense of Advanced Micro Devices Inc. (NASDAQ: AMD) and benefits from rising IT spending outside the U.S.
"Revenue is going to ramp up dramatically in the second half of the year,'' said Graham Tanaka, president of Tanaka Capital Management in New York, in an interview with Bloomberg News. ``Investors are seeing in the end market that there is a firming in demand and that they're gaining market share.''
The company also gave bullish guidance. It sees third quarter revenue of between $9 billion and $9.6 billion with gross margins of about 52 percent. Analysts had expected revenue of $9.36 billion, according to Thomson Financial.
Minyanville Professor Sean Udall dares to share the kind of keen insight and actionable information you won't find in any prospectus. For more original thought, visit www.minyanville.com.
Speaking to friends, the $1 trillion question that keeps arising is "when do we start buying?" Astute investors, they've certainly lightened up on their exposure to stocks over the past few months and have cash sitting on the sidelines. "Are we making a bottom here?" they ask, readying themselves to start moving back into the stock market. As asset allocation and modern portfolio theory tells us, stay in the market, be diversified, and don't trade on emotion. The problem is that investors doing that since 2000 would have seen little investment returns in exchange for taking on stock market risk.
TheStreet.com's Jim Cramer says these stocks will ramp higher into year-end..gif){kind=logo}
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