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.
Today started out as one of those positive days again as the investment climate appeared to be getting better. Then the unemployment data came out, and frankly it wasn't really as bad as one would expect. But shortly after 10:00 AM, we saw profit takers come into the market. In fact, even oil traders ran oil up after shorts covered after a good week of selling Texas Tea; oil closed up $3.82 at $116.34.
Below are the unofficial closing levels for major US index levels:
DJIA 13,051.36 (+41.36; +0.32%)
S&P500 1,413.96 (+4.62; +0.33%)
NASDAQ 2,476.14 (-4.57; -0.18%)
10YR-TBond 3.845% (+0.096)
Agrium Inc. (NYSE: AGU) was a winner with shares up almost 5% at $82.25 in the last minutes of the day. The agricultural nutrients supplier beat earnings, and this gave some pause to the selling in the potash and fertilizer stock selling that had been seen this week.
MOST NOTEWORTHY: Dynamic Materials, Allergan and Sun Micro were among today's noteworthy downgrades:
Dynamic Materials (NASDAQ: BOOM) was downgraded to Neutral from Overweight at J.P. Morgan following the Q1 report based on margin risk from steel costs and availability.
Allergan (NYSE: AGN) was downgraded to Hold from Buy at Jefferies ahead of the Q1 report on May 7 based on potential deceleration in Botox and breast implants, which could result in multiple contractions.
Sun Microsystems (NASDAQ: JAVA) was downgraded to Peer Perform from Outperform at Bear, citing the disappointing earnings report for the downgrade.
OTHER DOWNGRADES:
ManTech (NASDAQ: MANT) was downgraded to Neutral from Outperform at Cowen based on valuation and expectations for decelerating growth in 2H08.
Silver State Bancorp (NASDAQ: SSBX) was downgraded to Sell from Hold at Sandler O'Neil.
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.
Regulators Zero in on Credit Card Reform Federal regulators are pushing ahead to stop abuses by credit card issuers at a time when the $2 trillion industry has come under increasing scrutiny. Regulators zero in on credit card reform - CNNmoney
The market hasn't seemed to have fully made up its mind yet regarding Wednesday's Federal Reserve announcement about its policy. While stocks shot up immediately after the announcement, markets finished the Wednesday in the red. Still, this morning stocks futures edged higher as investors not only continued to digest the news, but awaited several more economic reports. The Bank of England saying the worst of the credit crisis may be over, definitely helps boost sentiment this morning.
Indeed, stocks ended Wednesday's session lower despite the Dow topping 13,000 briefly after the Fed's statement. It seemed also investors were divided, some preferring the Fed to signal clearly a pause in rate cuts so the dollar would gain strength and halt the rise in commodity prices and hence inflationary pressures. Meanwhile others were more concerned about the economy and perhaps preferred either a more positive language regarding the economy or indications of further measure. Regardless, the Dow Jones Industrial Average fell 11.81 points, or 0.09%, and the S&P 500 index shed 5.35 points, or 0.38%. The Nasdaq dropped 13 points, or 0.55%.
On the economic calendar for Thursday are the March figures for personal income and spending, which includes a key inflation measure. The ISM index for manufacturing activity also is on tap as well as construction spending. The weekly jobless claims is due before the opening bell, but April jobs report is due tomorrow, and that will likely affect markets the most.
MOST NOTEWORTHY: Garmin, Thomson Reuters and Heritage-Crystal Clean were today's noteworthy initiations:
Garmin (NASDAQ: GRMN) was initiated with a Neutral rating at JP Morgan. The firm sees risk to 2008 Street estimates given the consumer slowdown in the U.S. and potential ASP and margin pressure as channel inventory is worked down.
Morgan Stanley assumed Thomson Reuters (NASDAQ: TRIN) with an Underweight rating and expects revenue growth in the company's financial business to slow sharply into 2009.
William Blair believes Heritage-Crystal Clean (NASDAQ: HCCI) has the opportunity to gain market share over the next several years as a result of its differentiated parts-cleaning programs, strong sales organization, and experienced management team. Shares were assumed with an Outperform rating.
OTHER INITIATIONS:
Lehman initiated Dell (NASDAQ: DELL) and Sun Microsystems (NASDAQ: JAVA) with Equal Weight ratings and targets of $20 and $17 and Apple (NASDAQ: AAPL), IBM Corp (NYSE: IBM) and Hewlett-Packard (NYSE: HPQ) with Overweight ratings and targets of $195, $144 and $59, respectively.
Pacific Growth started Spectranetics (NASDAQ: SPNC) with a Neutral rating.
Merrill reinstated Chevron (NYSE: CVX), ExxonMobil (NYSE: XOM) and Hess Corp (NYSE: HES) with Buy ratings and price targets of $110, $105 and $125, respectively.
Back in the 1980s, Oracle (NASDAQ: ORCL) won the mega fight for the database market. And the firm's dominance has been fairly steady since.
But might things be changing? Perhaps so. After all, there are a variety of robust open source alternatives such as MySQL AB. In fact, Sun Microsystems (NASDAQ: JAVA) recently spent $1 billion for the company.
There is also another sturdy player: EnterpriseDB. In fact, this week the company snagged $10 million in venture capital. The investors include Charles River Ventures, Fidelity Ventures, Valhalla Partners and even IBM (NYSE: IBM). Keep in mind that IBM rarely invests in venture deals. Although, it's been a big supporter of open source, such as with Linux, Apache, and Eclipse.
EnterpriseDB's solutions are based on PostgreSQL, which is a top-notch open source database (under development for more than 15 years). "MySQL is good for quick and dirty databases," said Andy Astor, the CEO of EnterpriseDB, in an interview with me. "But EnterpriseDB goes beyond this and offers intensive transaction processing, scalability and other important capabilities." Interestingly enough, EnterpriseDB has a powerful feature to provide compatibility with Oracle databases.
Astor admits it's not easy getting customers (especially in light of the intense competition). But so far, EnterpriseDB has about 225 paying customers. "Open source is an unstoppable force," said Astor.
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.
According to NASDAQ figures on short selling on February 29, shares sold short in tech companies dropped sharply, an indication that investors are not willing to bet that stocks in the companies will go lower. The numbers compare to figures on February 14.
Shares sold short in Intel (NASDAQ: INTC) dropped 5.8 million to 64.1 million. Shares short in Dell (NASDAQ: DELL) fell 5.3 million to 47.1 million. Share short in PMC-Sierra (NASDAQ: PMCS) dropped 3.7 million to 29 million. Yahoo!'s (NASDAQ: YHOO) short interest fell 2.5 million to 52.8 million. Shares short in Apple (NASDAQ: AAPL) dropped 2.2 million to 22.8 million. Shares short in Sun (NASDAQ: JAVA) dropped 2.1 million to 17.8 million.
Some of the largest techs did not escape larger bets that they would drop. Shares short in Microsoft (NASDAQ: MSFT) rose 3.4 million to 115.7 million, perhaps because of concerns about the Yahoo! deal. Shares short in Cisco (NASDAQ: CSCO) increased 3.3 million to 48.6 million.
How Could One Man Cost a Company Over $7 Billion? How could this possibly have happened? One of the biggest frauds in financial-services history apparently was carried out by a 31-year-old trader in Société Générale's Paris headquarters, whom multiple news sources have identified as Jerome Kerviel. Many are left to wonder about the lucrative but risky equity-derivatives business. Société Générale's Fraud: What Now?
America's Fastest Growing Tech Companies Even in a rough market, these companies are poised to soar. Topping the list is Google, followed by Salesforce.com, Ceradyne, Euronet Worldwide and Falconstor Software. America's 25 Fastest-Growing Tech Companies - Forbes.com
Amgen Inc (NASDAQ: AMGN) said on Thursday that fourth-quarter profit edged higher. The cost cut measure the world's largest biotechnology company by sales has taken helped it post a quarterly net profit of $835 million, or 76 cents per share, compared with a profit of $833 million, or 71 cents per share, a year ago. Excluding items, Amgen earned $1.00 per share, topping analysts' average expectations by 3 cents a share, according to Reuters Estimates. More importantly, though was Amgen's sales of the red blood cell booster Aranesp -- seen as its most important product -- which easily beat analysts expectation. Shares are up nearly 3.5% in premarket trading.
Caterpillar Inc. (NYSE: CAT) had just reported, saying its fourth-quarter earnings rose 11% to $975 million, or $1.50 per share on strong international growth, which offset weakness in the domestic market. Revenue rose 10% to $12.14 billion. Analysts were expecting a profit of $1.50 per share on revenue of $11.79 billion, according to a poll by Thomson Financial. Revenue outlook for 2008 was slightly below expectations. Stock is up 0.77% in premarket trading.
Honywell Internationl Inc. (NYSE: HON), also reported late Thursday, saying that fourth-quarter net income rose 18% to $689 million, or 91 cents per share, inline with analyst estimates. All its four business segments experienced growth. Fourth-quarter sales were up 12% to $9.3 billion. HON shares are up 1.4% in premarket trading.
Earnings (with so much earnings news, I'll try to be brief):
Ford Motor Co. (NYSE: F) reported Thursday it halved its quarterly losses. The carmaker lost $2.7 billion in the fourth quarter and $2.8 billion for the year, down from $5.6 billion and $12.6 billion respectively. Still, while Ford did well in global markets, its gains were dragged down by continued weakness in North America. Excluding special items, Ford lost 20 cents per share for the quarter and 19 cents per share for the year, in line with Wall Street's expectations. Ford shares are showing a decline in premarket trading.
Lockheed Martin Corp. (NYSE: LMT) reported this morning a 10% rise in fourth-quarter profit. Gains in its space, information technology and electronic systems units made up for a dip in sales of fighter jets. Lockheed reported a profit of $799 million, or $1.89 per share on flat net sales of $10.84 billion. These topped analyst estimates as polled by Thomson Financial of $1.69 per share on sales of $10.73 billion. The defense contractor also raised its forecast for 2008 earnings per share.
Xerox Corp. (NYSE: XRX) on Thursday said its profit rose 79% in the fourth quarter to $382 million, or 41 cents per share, pretty much in line with analyst estimates. A mix of cost controls and growth in equipment financing and services were the reason for the profit rise. XRX shares are up 8.6% in premarket trading.
Also reporting today: Microsoft Corp (NASDAQ: MSFT), E-Trade Financial Corp. (NASDAQ: ETFC), Sun Microsystems Inc. (NASDAQ: JAVA), Hershey Co. (NYSE: HSY) and Amgen Inc. (NASDAQ: AMGN) to name but a few. Here's a list from Briefing.com.
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.
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Earnings (with so much earnings news, I'll try to be brief):
The Wal-Mart Weekly: Examining shareholder resolutions, Part 2
Earnings expectations for JC Penney, Nordstrom, Macy's, Abercrombie and others
Comfort Zone Investing: Financial stocks: Is the worst over yet?
