Stocks to Watch: 7 Longs and 1 Short I Can't Resist

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Includes: AAPL, ARMH, BBRY, CSCO, DELL, GOOG, INTC, LVLT, MSFT, NOK, ORCL, SIRI
by: Richard Saintvilus

Company

Ticker

Percentage

Shares Traded

Current Price

Sirius XM Radio

(NASDAQ:SIRI)

Rose 0.5%

90,494,300

$1.92

Cisco Systems

(NASDAQ:CSCO)

Fell 0.9%

53,432,500

$15.85

Level 3 Communication

(NASDAQ:LVLT)

Fell 2.7%

42,981,300

$2.17

Research In Motion

(RIMM)

Fell 0.5%

21,958,600

$26.79

Oracle Corp

(NASDAQ:ORCL)

Fell 0.4%

33,063,100

$27.47

Dell Corp

(NASDAQ:DELL)

Fell 10%

68,406,000

$14.20

Microsoft Corp

(NASDAQ:MSFT)

Fell 0.4%

49,716,700

$25.25

Intel Corp

(NASDAQ:INTC)

Fell 0.6%

49,184,800

$20.67

Click to enlarge

Sirius XM

On Wednesday, Sirius XM rose a half of 1 percent to a price of $1.92 when the rest of the equities on the list above all fell modestly. Sirius continues to show how resilient it is. I use the chart above as a standard to track the company’s stock performance. This tends to give me some insight on the sentiment of the broader market relative to its own; this has proven very beneficial ever since the stock was added to the Nasdaq 100 last month. Investors who are looking for an accurate gauge of Sirius’ possible movement may not be able to find one better than tracking the list above; give or take a few tickers.

Over the past week the stock has been under heavy accumulation. It has shown to have generated plenty of buyers and very few sellers. This is good news for those who have remained long in spite of the feelings of regret. Since reaching the bottom of $1.63 on August 8, the stock has now risen 18% to its current level and poised to go higher. It will require another market meltdown to keep Sirius from not only reaching $2 but potentially re-testing its second point of resistance at $2.10.

The bears who thought this stock was going to the $1.50s and possibly below have suddenly changed their tune. But then again, what did you expect? After a breakout earnings report, the stock got in the line of fire and was a casualty in the economic turmoil. But look for it to not only regain its pre-earnings level, but surpass it as the summer doldrums fade.

Cisco Systems

Earlier this week I told you how I thought Cisco looked 15 years younger. After some tough changes by CEO, John Chambers, the company is now looking incredibly fit after reporting profits that beat analysts’ estimates. Excluding some costs, profit was 40 cents a share compared to the expected 33 cents. Sales rose 3.3% to $11.2 billion in the period, which ended July 30, compared with an estimate of $10.98 billion. As much criticism that I have given to Chambers, I have to now give the man credit for what appears to be the beginning of a remarkable turnaround in the company. It is clear that the restructuring enacted by the company has strengthened my previous assessment that Cisco is not only great value at current levels but will likely continue to grow in the face of a struggling economy. The earnings announcement resulted in an upgrade by Goldman Sachs with a target of $21. GS believes that Cisco is at the beginning of an upward estimate revision cycle and expects sales growth to bottom in the fourth quarter. They have raised the company’s price target to $21.

Cisco has been one of my longest holding in my portfolio. If investors look deep into the numbers, they will see a company that trades at a very attractive valuation multiple. 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 8. One can argue that there is no other company that has been able to leverage its balance sheet better than Cisco, which can deliver 40% premium from current valuation by the end of the year.

Level 3 Communications

I have been extremely bullish on Level 3 communications. Much like Sirius XM, the company has seen its share price fall dramatically due to the struggling economy. But this reason is not so bad. If one can agree that a particular equity trades with the broader market and succumbs to macro events, which is not reason enough to bail on the stock. Level 3 continues to see significant improvements in its fundamentals. Some of which includes:

  • Continued Core Network Services Revenue Growth.
  • Consolidated Revenue of $932 million.
  • Continued Core Network Services revenue growth; 2 percent sequentially and 6 percent year-over-year.
  • Consolidated Adjusted EBITDA increased to $226 million, or $234 million excluding costs associated with the Global Crossing transaction.
  • Global Crossing transaction expected to close before the end of the year.

After the stock reached $1.69 on August 8, it has risen 13 percent to its recent price of $1.91. It continues to be a race to $2.00 between Level 3 and Sirius. The good thing is, it’s a race in the right direction.

Research In Motion

My new favorite stock these days is Research In Motion. Investors were a bit surprised last week when I turned bullish on the company after being a long time bear for several months. I explained it this way, the stock price was just an arm's length away from my short target of $20 and seeing how it has bounced off of that price suggests to me that it may be time to take a second look at the stock. I am now bullish on the company and feel that most of the negative news has now been priced into the stock and more realistic expectations have been set regarding its recent struggles. I now have a new 12-month target on the stock of $30 and feel that it is now a tremendous value.

Some readers were a bit critical of what was perceived as a “sudden change of heart .” But I don’t understand this logic. Information changes rapidly. So why should one's mind not be able to do the same? I turned bullish on RIM when it reached $21. I called the bottom. Now it's on its way up, so why should I remain bearish. I think its management is inept; the company has failed to produce and innovate. But the stock is cheap relative to its book value. So that makes it a buy. We change our minds every day,

Oracle

What is wrong with Oracle? This is the question many investors are asking these days. Since reaching its most recent high of $32.21 the stock has been down 15 percent to a price of $27.47. Oracle continues to show that it is 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 $27 per share, the stock remains incredibly cheap and I continue to have confidence that the stock will reach $40 by the end of the year.

Dell

Tuesday after market closed, Dell reported earnings that caused me to revisit an article I wrote last week regarding Sirius XM and dealing with investor regret; a feeling that is as common as the air we breathe. While listening to the conference call, I realized that I bought too soon; where Cisco’s price jumped on the announcement, Dell’s stock got pummeled during afterhours, trading falling nearly 8 percent though its net income rose 63 percent for the quarter. The company said it earned 54 cents a share minus items for the quarter ended July 29. That's up 69% from the year-ago quarter and 5 cents above analyst views. The company said vendor settlements added 4 cents to its EPS. Sales, however, came in light at $15.66 billion, up 1% but short of the $15.76 billion predicted by analysts.

Although corporate and government sales were performing better than expected, Dell proceeded to cut its full year revenue forecast, citing the collapse of consumer demand for personal computers as a result of not only high unemployment but also because of prevailing interest in the tablet and smart phone market created by Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) and Research in Motion.

I said yesterday that Dell has a chance at breaking away from its corporate slow growth mold into a behemoth of innovation. The company can once again become very attractive by transitioning from such heavy reliance on computers and transform itself into the areas of content delivery in order to become a diversified tech provider; an acquisition of Sirius XM Radio comes to mind. Sirius would immediately present Dell with close to 70% of the automobile market, while also providing satellite assets that would instantaneously allow Dell to enter the market of CDNs (Content Delivery Networks). The smart phone and tablet offerings from RIM could then easily be integrated with satellite receivers that would top those offered by both Apple and the Android platform.

Microsoft

Like all of the equities mentioned, Microsoft has seen its shares drop quite considerably. But this is through no fault of its own. In the wake of Google’s acquisition of Motorola Mobility (NYSE:MMI), many have speculated about the next big M&A announcement. With piles of cash, Microsoft is always rumored to be wanting or needing something. On Wednesday, I figured why not acquire Research In Motion? Think about it, it makes perfect sense.

Microsoft is the obvious choice here because for quite some time it has been trying to become relevant in the mobile phones market. Its recent partnership with Nokia (NYSE:NOK) (see announcement from February) will be limited and not likely to result in much of the same realm as where Apple and Google currently rank. A RIM acquisition would immediately make it a player in that market and strengthen its dominance in the enterprise environment by establishing its own version of the now popular term “ecosystem.”

Intel Corporation

While I believe Intel remains highly valued, I see them eventually succumbing to the newcomers in their field; particularly those that entered the smart phone and tablet processing space such as ARM Holdings (NASDAQ:ARMH) where they are attacking Intel by taking a different route. ARMH is focusing on producing power-efficient processors for use the mobile devices; especially those produced by Apple, whose own processors used in the iPad and iPhone are based on ARMH's licensed designs. This is in lieu of trying to beat an established giant producing processors largely for personal computers. I think this strategy is brilliant!

It is worth noting that Microsoft has chosen ARMH processors for use in its next Windows operating system. ARMH's license-based business model means that the company can avoid the overhead costs of production and sink more money into research and development. With computing becoming an increasingly mobile activity, lightweight processors that save power and still pack a punch will become even more important, and ARMH's customer-pleasing design flexibility should enable it to compete with Intel in the future. Intel needs to put its resources towards R&D to mirror what ARMH has established. If they are unable to duplicate this early success, it won't be long until Intel (as you correctly say) is mentioned in the same breath as Cisco, RIMM and even MSFT.

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