Cisco and Intel - Ugly Charts, Bearish Momentum, Good Value

Includes: CSCO, INTC
by: Bio Insights

Cisco and Intel are both massive tech companies with slowing growth and bearish momentum. While many tech investors are chasing firms with brighter growth prospects like Oracle (NASDAQ:ORCL) and Qualcomm (NASDAQ:QCOM), these immense cash cows are becoming quite cheap based on fundamentals.

Cisco (NASDAQ:CSCO): The demand for Cisco's products is expected to grow at a slower rate than last year (7% as opposed to 11%), but the stock has been in a cyclical downtrend for an entire year which makes me question just how bad investors believe the firm's outlook is. Trading at a 13.6 P/E ratio and a forward multiple of 12, its just a bit cheaper than its mega-cap cousin IBM which has been trading very flat since the end of January. Cisco is cheap now, but I believe it might get cheaper in the near future, which might present an opportunity to begin looking for an entry position.

Technicals look extremely unhealthy, as the downward sloping 50-day moving average is below the downward sloping 200-day moving average. The ship is sinking, even despite the new dividend issued by the firm to repay the unfortunate long-term holders of CSCO. I believe that the firm might reach a point of valuation that a reversal in the trend will occur, but not yet. When the 50-day moving average breaches the 200-day average, I will be a believer but the chart looks hideous for the time being.
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Intel (NASDAQ:INTC): Perhaps healthier stock of the two picks, Intel has been punished thoroughly due to their lowered guidance due to the market dominance of tablets and smartphones. Despite the slowdown in the chip market, Intel has managed to beat analyst expectations for quite a few quarters. On top of the great valuation in this equity, it pays a hefty 3.6% dividend. Combined with it's consistent cash flow, the stock looks quite cheap considering the fundamentals. Intel is trading at a P/E ratio of 9.8, and a forward P/E estimate of 9.9. Insider trading is largely positive, and industry demand for computers is expected to continue growth due to aging hardware replacements. I feel that investor sentiment is the primary driving force behind Intel's price, as the fundamentals are not accurately portrayed in this dirt-cheap stock.

A technical analysis shows Intel's 50-day moving average slowly converging with the slowly dropping 200-day moving average. This bearish picture would make me stay away from the stock for the near term, as this implies that shares are still being sold off with some momentum. If the 50-day manages to dip below the 200-day for a prolonged period of time, I feel that the selling will continue for a while longer based on the negative sentiment associated with Intel at the moment. Before establishing a position, I would wait for an upward slope in the 200 and 50-day moving averages (with the 50-day being above the 200-day average naturally).

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While I would be mindful of the fundamentals of these companies, the NASDAQ's rally since the "Fukushima selloff" and Oracle's stellar quarterly report is showing signs of slowing down. To get the best prices, I would wait for a correction, and a reverse in the technicals of both these stocks. Be careful out there, and remember that these two companies are not in favor now but could return in the future.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.