Hold IBM And Nokia, Sell AMD, Consider Cisco And BlackBerry

by: Richard Saintvilus

To continue on with our earnings series, in this article we are going to look at IBM, Nokia and Advanced Micro Devices. While these tech names are in separate categories such as enterprise services, mobile and semiconductors, each have had their own growth obstacles to overcome. With different sets of expectations and market sentiment, let's see if you agree with my recommendations.


IBM is still doing what it has to do to please investors. The company is coming off a "mixed" fourth-quarter where revenue was sub-par. For IBM, even though growth has been far from exceptional, the company consistently delivers where it matters the most, which is on the bottom line as evident by a 6% improvement in fourth quarter net income.

However, revenue was a bit soft - arriving at $29.30 billion. While this was enough to beat Street estimates of $29.09 billion, it did represent a year-over-year decline of almost 1% - the third consecutive quarter of deteriorating sales. But on a sequential basis, revenue surged 18%. IBM said the performance was helped by a 3% increase in its software business.

In a sector that has been ravaged by poor IT spending, the 3% growth, while far from robust, was encouraging. Still, IBM has a long way to go to catch up to the likes of Oracle (NASDAQ:ORCL) and Salesforce.com (NYSE:CRM). However, management didn't sound too optimistic that it expects things to immediately improve.

For 2013, IBM is projecting non-GAAP EPS of at least $16.70. While it's above Street estimates of $16.63, it's not the robust growth that investors were expecting. On Thursday, the company will report results for the first quarter. Given the recent disappointment that Oracle and Red Hat (NYSE:RHT) has suffered, I would be too excited about adding shares of IBM here. A miss on revenue would not be a surprise and investors might be able to get this stock at $10 cheaper.

Consider Cisco (NASDAQ:CSCO)

To replace IBM in the enterprise portfolio, I would be adding Cisco, which at $21 per share, still looks incredibly cheap. It still appears as if the market is discounting Cisco's long-term potential. This is despite what analysts believe is an imminent rebound in enterprise IT spending. While you can argue that this would also benefit IBM, the premiums this would add to IBM is not as significant.

Investors have a great opportunity with Cisco, which has been on an acquisition spree - buying cloud names to capitalize on the projected $177 billion growth in the market. While bears argue that the company has been spending too much, Cisco understands that its future depends on some of these deals.

Besides, Cisco is still sitting on $46 billion in cash, which is 4-times that of IBM and Cisco carries half of what IBM carries in debt. What's more, Cisco has another $12 billion in operating cash flow. The company deserves the benefit of the doubt with its recent deals and deserves time to execute its mission. With Cisco's cash and long-term growth rate of 6%, these shares are worth at least $30. And when you factor Cisco's decent yield, this is one of the safest and cheapest stocks on the market.

Hold Nokia (NYSE:NOK)

Shares of Nokia are down 14% so far on the year. But that doesn't tell the whole story. When looking back since April, the stock is up more than 100% after reaching a bottom at $1.63 last summer. Investors want to know where the company is going next. Unfortunately, that is not an easy question to answer, given how closely tied Nokia is to Microsoft (NASDAQ:MSFT).

On Thursday, the company will look to continue its momentum when it reports first-quarter earnings results. Analysts are expecting the company to post a loss of 6 cents per share, which would be a 45% increase from an 11% loss a year ago. Revenue is expected to arrive at $8.65 billion, which would be a 12% drop year over year from $9.79 billion posted in the year-ago quarter.

Unfortunately, Nokia has not had a strong showing of late as revenue has deteriorated for four consecutive quarters, including a 4% sales drop in Q4. On the bright side, the company posted a profit, which ended a streak of three straight quarterly losses. While the company's resurgence have been to the relative success of the new Lumia line of phones, if consumers don't embrace Windows, Nokia upside is limited.

Consider BlackBerry (BBRY)

On that basis, I'm not too excited about the stock, especially after shares have already surged the past eight months. Meanwhile, although I have not been too bullish on BlackBerry, I think the company has more upside than Nokia for investors looking for a better play on mobile. The concerns about device returns have been overblown, given management's recent statements as well as those by Verizon (NYSE:VZ).

While I'm not willing to fully embrace BlackBerry until management places more of an emphasis on services, the company is improving. Peter Misek recently issued a $22 price target on the stock while citing strong fiscal Q1 revenue results. But investors have to have realistic expectations. This is a company that posted a 36% revenue drop in the recent quarter. While there is value here at $14 per share, $22 seems like at least 12 to 18 months away. Then again, it's still better than Nokia's upside.

Sell Advanced Micro Devices (NYSE:AMD)

After four consecutive quarters of negative cash flow growth, it appears that the situation has gotten worse for Advanced Micro Devices. In the company's most recent quarter, not only did revenue dropped 31% year-over-year, but earnings plummeted 18% - posting a net loss of $1.18 billion. The competition has grown seemingly too fierce.

In some respects, it seems AMD has given up seeing as the company also decided to cut spending. The good news is that despite the horrid state of the PC industry, the stock has not dropped. As of this writing, shares are trading at $2.40 per share, which is exactly where it started the year. The company will report first-quarter earnings on Thursday and the Street is looking for a loss of 17 cents per share, which would reverse a profit of 12 cents a year ago.

Revenue is also expected to drop by 34% to $1.05 billion. It's worth noting that AMD has posted revenue declines in each of the past four quarters, which resulted in a loss of roughly 55% of its value last year. Will the company reverse the trend? That is not very likely. AMD carries twice as much debt as it does cash and the company is negative $340 million in operating cash flow. Absent some significant turn of events I don't see how it makes sense to add these shares here.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.