Stocks to Watch: 3 Longs and 1 Short

by: Richard Saintvilus





Shares Traded for the week

Current Price

Cisco Systems


Rose 5.7%

305 million


Level 3 Communication


Rose 3.4%

111 million


Sirius XM Radio


Fell 7%

302 million


Research In Motion


Rose 1.4%

80 million


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Cisco Systems – Price Target $20

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For the week Cisco rose 5.7% on 305 million shares traded. The company is preparing to announce its Q4 and full year 2011earnings in a couple of weeks (August 10). Since reaching a bottom of $14.78 on June 16 which prompted my request of Chambers’ resignation, the stock is up 11% and closed Friday at $16.46.

Cisco’s challenge continues to be its perception. Over the past several months, investors have sold off portions of their holdings as a way to minimize their exposure in the stock while they try to assess what is going on within the company. If the company can wisely reinvest its capital to create more innovative ways to compete, I feel investors, patient or not, will be handsomely rewarded. Because at the current level that the stock is trading, I see an opportunity for those who are looking for value and are willing to be patient to realize some significant gains.

Level 3 – Price Target $3.00

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Level 3 communications is up an impressive 3.4% for the week in 111 million shares traded. I say impressive because there was a stretch when the stock traded down for six consecutive days. The company is due to report its Q2 report this Wednesday July 27. So far, Wall Street is expecting a loss of 9 cents per share which would beat the 10 cent loss from the same period a year ago. Level 3 has been on a roll over the past four quarters as it has consistently beaten estimates. Several analysts who follow the company expect revenue to reach 937 million; which would be just above a 3% increase from the year prior.

At current valuations and with future cloud demand, there will continue to be a market for the services that Level 3 has to offer, which includes its unique global services platform anchored by fiber optic networks on three continents, connected by extensive undersea facilities. The combination with Global Crossing’s (NASDAQ:GLBC) network will be able to serve a worldwide customer set with owned network in more than 50 countries and connections to more than 70 countries. It will then be able to potentially create a company with pro forma combined 2010 revenue of $6.26 billion and pro forma combined 2010 adjusted EBITDA of $1.27 billion before synergies and $1.57 billion after expected synergies.

Sirius XM – Price Target $2.90

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Sirius XM saw a decline of 7% for the week on 302 million shares traded. The company recently announced that it will report earnings on August 2. With six trading days left before the conference call investors are growing frustrated at what was expected to be a surge it is price.

Sirius expects to generate approximately $3 billion in revenue and $715 million in adjusted EBITDA for fiscal year 2011, while projecting free cash flow to now approach $350 million. From an operations standpoint, it is also projecting to add another 1.4 million net subscribers by the end of the year and to experience full-year conversion and self-paid churn rates similar to that of 2010.

As usual, these continue to be pretty “conservative” figures in my opinion. Sirius is notoriously cautious when it comes to guidance but even from a bearish perspective, these figures (if reached) will keep the company on the same course of growth as last year, if not slightly higher. This is why I expect guidance to be raised, and for the stock to respond with a price target of $2.90; it just may not be when we previously expected.

Research In Motion – Price Target $20

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For the week, Research In Motion rose 1.4% on 80 million shares traded. The stock closed at $27.91 on Friday. 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. Upon reporting a drop in earnings for the first fiscal quarter, the company then slashed its full-year earnings forecast, signaling continued weakness in BlackBerry phones.

If investors look at RIM’s chart over the last six months you can clearly see that it has been losing quite a bit. In plain point and fact, the stock has been a complete and utter disaster. I have written previously why I felt RIM was the prime short of the market and even after the earnings disaster, I suggested that the stock will be below $20 by year’s end. So far I have not seen any evidence to sway me from this opinion.

Disclosure: I am long SIRI, CSCO, LVLT.