Scrutinizing Techs: 6 Longs and 1 Short

|
Includes: AAPL, BBRY, CSCO, LVLT, MSFT, ORCL, SIRI
by: Richard Saintvilus

Company

Ticker

Percentage

Shares Traded

Current Price

Sirius XM Radio

SIRI

Fell 1.2%

55,450,200

$2.13

Cisco Systems

CSCO

Fell 1.1%

32,975,900

$16.28

Level 3 Communication

LVLT

Fell 3.2%

19,176,300

$2.35

Research In Motion

RIMM

Fell 4.4%

16.330,400

$26.67

Oracle Corp

ORCL

Fell 1.2%

18,914,200

$32.21

Microsoft Corp

MSFT

Rose 1.4%

102,435,700

$27.91

Apple

AAPL

Rose 1.3%

18,100,700

$398.50

Sirius XM

Sirius has seen its stock drop from a recent high of $2.35 to yesterday’s close of $2.13 for a 9% reduction in value. Investors continue to get uncomfortable about what typically should be an earnings run. We are all well aware of the debt crisis that our country is in and to some extent that has caused investors to get on the sidelines until this situation clears up.

I encourage those who are discouraged to stay the course and maintain perspective. Those who are down on the stock should find solace in realizing that last year at this time Sirius was trading at 94 cents and closed the year at $1.63 for a 73% gain. From this level, the stock can still close the year at $3.68. Would that be so bad? It requires looking at the “big picture” from time to time to help mitigate the frustration that we sometimes feel from the day to day tracking of the stock.

There is now five trading days left before earnings. 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. I still expect CEO Mel Karmazin to raise guidance and help give Sirius investors some optimism and some reasons to be excited.

Cisco Systems

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 Monday at $16.28. 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 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.

It is tough to not value Cisco; a company with such strong fundamental standing. The stock price neither reflects its market share status nor fundamentals. If we look deep into the numbers, we can see a company that trades at attractive valuation multiples. It stands solidly with a market cap of $87 billion as well as 58 billion in EV and trades at a modest forward P/E of 9. How can a company with $43 billion in cash not be considered, especially one that has amassed almost $10 billion in free cash flow each year? One can argue that there is no other company that has been able to leverage its balance sheet better than Cisco.

Level 3 Communications

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 capabilities 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.

Research In Motion

As much as I have proclaimed the demise of RIM, I can say with some degree of certainty that the company is not going away anytime soon. I mean seriously, with $2 billion in cash, that can buy any company a significant amount of time. 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 their BlackBerry phones.

It’s hard to imagine, a little over three years ago, nobody expected Apple (NASDAQ:AAPL) to enter the smart phone market nor did any believe that Google’s (NASDAQ:GOOG) Android platform would have been as viable as it has become. The unfortunate reality for RIM is that both companies continue to steal market share and RIM’s management has inspired very little confidence that they are able to do anything about it. As rumors continue to swirl surrounding a possible takeover target from the likes of Microsoft (NASDAQ:MSFT) and even Dell (NASDAQ:DELL), investors continue to wonder what the future will bring. But, for now, the future remains grim and RIM remains a short.

Oracle

What is wrong with Oracle? This is the question many investors are asking these days. The database giant disappointed investors when it reported its Q4 earnings results. The focus was on the company’s less than inspiring hardware revenue. The stock has taken somewhat of a beating since the report but I can’t help but to consider this an overreaction. It seems investors are punishing the software giant because of its under-performing sales in hardware. Let that marinate for a moment.

To date, after its recent report, Oracle has shown that it continues to be the exception and not the rule to the idea that a “mature company” can no longer be a “growth company.” “Maturity” by many standards is what Oracle has, but it continues to show that this is not the enemy of “growth.” I think investors would be better served to look at Oracle in the broader sense and from the standpoint of the entire trajectory over the past decade. Investors would be pleased to find that there is nothing wrong with the company.

Being a dominant tech player is at the top of every Oracle mission. So far this year it has not disappointed. At $32 per share, the stock remains incredibly cheap. Though the 10% drop since April has been a slight disappointment, I continue to have confidence that the stock will reach $40 by the end of the year.

Microsoft

Microsoft fans can thank me later. On June 21 I called for the removal of Steve Ballmer, since then the stock has responded with a 15% increase. Alright, I’m willing to admit that it might have been a slight coincidence, but companies hear things such as “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.”

Let’s just say that Ballmer can stay as long as the stock remains in its current trajectory.

Apple

Apple reached that magical $400 milestone yesterday. Many analysts had remained bearish because they felt 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.

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