6 Longs and 1 Short

by: Richard Saintvilus




Shares Traded

Current Price

Sirius XM Radio


Rose 0.8%



Cisco Systems


Rose 0.8%



Level 3 Communication


Rose 0.4%



Microsoft Corp


Rose 3.7%



Oracle Corp


Rose 1.4%



Apple Inc.


Rose 1.7%



Research In Motion


Fell 1.4%



Click to enlarge

SIRI: Long

Sirius continues to show erratic behavior, but looking at the stock from two different lenses is always important -- one from a trader's perspective, the other from an investor's. I say this because it requires separate sets of expectations. The $2.10 appears to be a ceiling of sorts, but at one point so was $1.88 in Q1 and we all know what happened. Various theories aside, we have to expect a couple of new 52-week highs -- if not this coming quarter, certainly the next. I have the stock heading towards $2.75. The only thing that I have not determined is when.

In Q1, Mel Karmazin raised FCF by 50 million. In what way will he energize the stock this time around? I expect subscriber numbers to come just slightly under what they reported in Q2 of 2010 (580K), but that would not stop him from increasing full-year guidance with two quarters already under his belt. This is from the "investor" lens. Trading in and out is going to be tricky this time, since $2.10 is 15% under the current 52-week high. Sirius will continue to present some opportunities to play the swings, but as the earnings date draws near, these swings will get much smaller.

CSCO: Long

A couple of weeks ago I wrote an article pleading for the removal of Cisco CEO John Chambers. Clearly at this juncture, it appears that only his dismissal can re-energize the stock price. So I issued an ultimatum demanding that either he goes or I go. I sent a lengthy email to Chambers that chronicles some of his missteps as a way to explain why I have come to feel that his stepping down is in the company’s best interest. I have yet to hear back, but I don’t suppose I will get a response any time soon. Nevertheless, I will keep you posted. But now, I'm willing to take cash to stay.

When one looks at Cisco from a fundamental perspective, one sees a company with $25 billion of net cash that trades at less than nine times earnings, which has provided double-digit returns on capital, and is still a dominant player in its industry; fundamentally, the company is strong. The stock continues to languish but I still recommend it as a buy from a fundamental perspective; frankly, it remains cheap at under $15 per share.

ORCL: Long

On Thursday, Oracle (as expected) reported record numbers in revenue, to the tune of $10.8 billion for the quarter, which was an increase of 12% from the previous year. I would be hard-pressed to find a “non-growth” company that consistently produces such stellar top line results. Not only did the company report operating income of $5.2 billion, which was an increase of 19% from last year, but this was while it grew its operating margin by 48%. So I ask the question again: What is wrong with Oracle? BMO Capital Markets’ Karl Keirstead answered this question best when he said, "We do not want to over-react to trends in a business representing 10% of Oracle's revenue mix; the other 90% of Oracle is performing well."

LVLT: Long

Shares of Level 3 Communications reached an intra-day high last Wednesday of $2.34, a mere 5% away from its 52-week high of $2.46. The question that I keep coming back to: Why? It is remarkable how resilient the stock has behaved even in the face of a bearish market. For the past three months, I have not seen the catalyst for this surge in price. I have been waiting patiently for any kind of justification to emerge, but a rational explanation has not been provided. In a previous article, I proclaimed the stock had gotten expensive, but today, even with no new announcement, I can say that the stock is now fairly valued with more room to grow.

MSFT: Long

Microsoft needs new leadership, and it needs to either realize or admit what it already knows -- that CEO Steve Ballmer’s reign has lasted too long. In spite of all of its failures, I remain puzzled at the fact that Ballmer and the Microsoft board of directors haven’t come under greater fire for a lack of product focus; underestimating the competition; and for several misguided strategies that have led to Microsoft falling so far behind in the mobile computing race. This failure is a direct consequence of Microsoft inserting Ballmer, who many consider a great manager but just not the sort of visionary that the company needs as CEO. In many circles, he has been labeled the “accountant that Bill Gates appointed CEO.”

AAPL: Long

Many analysts remain bearish on Apple because they feel Apple will not be able to sustain the growth of its stock price after each earnings announcement, but I think that sentiment is all relative. Last year at this time, Apple was at $274. This year it has been as high as $364. It sustained its increase from Q2 of last year until this recent decline. Two weeks ago it was in the $350s. I think the issue is "expectations" for Apple are unlike any other stock trading today. Apple is on everyone's short list of where to put your money for the next five years. These declines really have no fundamental relevance.

RIMM: Short

Research In Motion over the last six months has been a complete and utter disaster. I had written previously why I felt RIM was the prime short of the market, and last week’s earnings tragedy served to affirm that sentiment. The direction of the company should be a major concern to every RIM shareholder -- even those with "glass half-full" outlooks. It is clear at this point that RIM should now only be touched with surgical gloves. The company reported a drop in earnings for the first fiscal quarter on Thursday afternoon and slashed its full-year earnings forecast, signaling continued weakness in its BlackBerry phones.

It wasn't all bad and there were some highlights during the call as well. Revenue in the first quarter grew 16% over the same quarter last year. International revenue in Q1 grew 67% year over year and also gross margin was approximately 44%, slightly higher than expected due to product mix. So I can see how those who are long RIM may want to continue to see the company through rose-colored lenses, but in light of all of the challenges that I have outlined above, if you are still long RIM, I suggest that you get your eyes checked. This remains a short and a $20 stock by year's end, if not sooner.

Disclosure: I am long SIRI, AAPL, CSCO, MSFT, ORCL.