If you are like me, you have grown tired, frustrated and slightly confused about how you would summarize not only the market’s but our own personal economic state of affairs- both of which have made 2011 one to remember and one that we would like to quickly forget. It seems like only a week ago that the market reminded investors of the slight uptick in 2009 when both the Dow and S&P 500 witnessed their best 5 day sessions in almost three years, but just as quickly, we’ve also been reminded of how fragile the word "optimism" is.
Just a week after the U.S. Department of Labor released favorable results regarding job growth and world leaders put forth measures to put Europe’s swirling economy back on track, Friday brought more concerns of downgrades of weaker eurozone countries. It seems now the concerns stems from a Fitch ratings on Friday which placed Belgium, Cyprus, France, Ireland, Italy, Slovenia and Spain on watch for possible downgrade and warned that a comprehensive solution to this festering problem is "technically and politically beyond reach".
The article continues and suggests that there is less concern over inflation and that the fed is committed towards is position of efforts to further boost our economic growth. The latest consumer price report followed data on Thursday suggesting a possible pick-up in job growth, which has been meager during the current recovery. Yet it seems we are unable to separate ails of situations abroad with that of our own. How quickly we forget that things are starting to look favorable here in the states. It seems the market is still unable to make up its mind about three things:
- What direction does it want to go?
- What concerns or catalyst will prompt such direction?
- Will these catalysts be foreign or domestic?
As I have been saying for a while now, I think the worst is behind us and clearly the market has more than shown to have reached its bottom. The question now is, will our fears further suppress what I think has become a clearer view picture that the economy is in fact improving as are corporate expenditures and jobs growth. Here are seven stocks that I think will continue to be impacted for a variety of reasons by both fear and optimism.
Seeking Alpha contributor Rocco Pendola has been all over a story that I think is more possible than many are willing to consider - one which will render a shocker if it does not come true and if Rocco does not win a Pulitzer for his coverage on this. In the article, 4 Possible Reasons Why Netflix May Be Under SEC Investigation, we learned the following:
In the SEC's letter to Disclosure Insight, it notes that the watchdog requested information on "any investigation related to Netlfix, Inc., since November 2010." While this does not mean that the investigation, assuming there even is one, started at that space in time, it raises the curious question as to why former Netflix CFO Barry McCarthy chose to step down in December 2010.
- The company line, relayed by Hastings in his Seeking Alpha letter to Tilson, was that McCarthy knew he would never be CEO at Netflix, therefore he wanted to be free to explore bigger opportunities. Interestingly, McCarthy, to my knowledge, does not hold a CEO role. Rather, he is a partner at Technology Crossover Ventures, the firm that recently invested $200M in Netflix.
- Shortly after McCarthy left Netflix, it's VP of Investor Relations, Deborah Crawford, resigned. This news came, quietly, in April 2010. While the departures of McCarthy and Crawford might just be examples of the normal turnover that happens within high-level management teams, the timing, without much clarification from Netflix, prompts the question of whether or not they could be associated with a possible SEC inquiry.
What I find more interesting about all of this is that for a company that has established a recent history of not keeping its mouth closed, it has remained silent and unwilling to even defend itself of these claims.
Research In Motion (RIMM)
It has become time for this once proud company to be put out of its misery. The real tragedy in all of this is that it continues to lend misguided hope to investors whom are still unable to reconcile the sad state of affairs that have become of the company. On Thursday, the company reported its Q3 fiscal 2012 earnings results. Co-CEOs Jim Balsille and Mike Lazaridis announced that effective immediately they will cut their salaries to $1. This comes after they disappointed investors with more putrid results and a disappointing outlook.
The company said that shipments of BlackBerry handhelds this quarter would fall by a greater amount than the Street expected, perhaps dropping to a range of 11 million to 12 million units, below estimates of 13 million to 14 million. But it did say that “they will leave no stone unturned” to fix what ails the company. Just when I thought that they had stopped trying, it was nice to get that reassurance. Let that be a warning to Apple (AAPL) that it better watch out.
It is hard to consider how much time the company has left – my guess is that perhaps two years at best. Over the past several years it benefited immensely from an enterprise monopoly that is no longer available. How can investors now realistically expect the same results? Not only has this fairly tale become too popular, it seems that RIM’s management continues to operate as if a return to prominence is remotely possible. But Wall Street is not buying it and knows that the numbers will only get worse as seen in the recent downgrades today:
Canaccord Genuity cut its price target on RIM's U.S.-listed shares to $15 from $18, citing the delay in the launch of BlackBerry 10 to the second half of next year and the company's plans to increase sales and marketing expenses to help sustain interim sales.
The price target on RIM's U.S.-listed shares were cut to $14 from $16 at Barclays, to $12 from $15 at Citigroup and to $8 from $10 at National Bank Financial.
Oracle, and in particular Larry Ellison continues to step on toes and apologizing to no one. The company plans to report its Q2 fiscal 2012 earnings on Tuesday and investors are expecting a stellar quarter. Though there has been a lot of activity amongst its main competitors, Oracle remains unfazed and simply just goes about its business.
In its last quarter, the company 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 another company that consistently produces such stellar top line results, yet be considered non-growth. 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%.
Analysts are expecting an improvement of $0.09 in earnings per share compared to last quarter's results of $0.48. Additionally, investors are anticipating results north of $0.57 per share based on the estimated mean earnings. Analyst estimates range between $0.54 and $0.58 per share. It seems when it comes to Oracle, there are still many who take these types of performances for granted. Or in other words, it has become routine.
Sirius XM (SIRI)
Sirius ended the week up 2 cents on 138 million shares traded. Investors are also wondering where has all the volume gone? Well, I’m wondering the same thing, and at the moment I have no clear explanation for the decline. I would venture to guess that investors are all waiting for the new year and the many hopes of optimism that comes along with it.
What can be said about Sirius’ stock that has not already been said, its movement continues to be a disappointment and a major source of frustration for investors. As it stands right now, the stock appears to be unable to get over the $1.92 - $1.95 mark – a ceiling that it has failed to break three times over the past five months. Right now, it continues to be a matter of “when” and not “if.” There are too many good things going on in the company for the stock to not be able to overcome this barrier.
Cisco Systems (CSCO)
Cisco continues to be one of the best performing stock in the market over the past 4 months. Though the stock fell on Friday a modest 0.5 percent to $17.94 on 94 million shares. One month ago I gave you three reasons why Cisco will reach $25 - It has momentum, focus and produces results. As the year draws to a close, it is showing to be sustaining the qualities of all three.
There is no denying that Cisco is clearly the market leader, and it's not going away. But I would be remiss if I failed to point out that its competition is also making some strides in this space as well. Having realized this, Cisco’s strategy now involves a one stop shop solution that offers both servers and networking components.
Apple has a problem - it has plenty of money and remarkably, it does not know what to do with it. So it keeps it. If you are like me, you are both envious and frustrated at the same time. Obviously, it’s a great problem to have. The company has been so successful at chronically producing golden eggs such as the iPod, iPhone and the iPad that this summer it surpassed the cash balance of the U.S. Treasury. I could not make up my mind if this event was an indictment of Apple or our government.
It seems Apple’s cash is burning in everyone else’s pocket except its own. If the alternative above won’t come to fruition in terms of a buyback or dividend, it comes back to the obligatory “then buy something already.” For this reason, everyone continues to come up with innovative ideas of ways it should spend its capital. But the problem is, no one has bothered to ask Apple. This time the rumor surrounds a small firm called Anobit that specializes in chip technology and is estimated to be worth upwards of $500 million.
It has been rumored it wants to buy Sirius XM, a deal that I never thought made sense. These days, the most recent rumors have turned to Netflix. But my contention is why? It did not need an acquisition to come up with the iMac nor the current iPhone. Whom did it acquire to develop iTunes? It seems investors are quick to forget why they have invested in the company in the first place.
It remains to be seen if this deal for Anobit amounts to anything other than the typical chatter. It would also signal that perhaps Anobit has something that Apple is unable to build themselves – in which case I would have no choice but the give the company the benefit of the doubt.
I continue to be staunch supporter of Microsoft, but I refuse to make excuses for what I continue to see as a series of missteps. In a recent article by Seeking Alpha contributor Leonid Kanopka, I was reminded why I first invested in Microsoft. But I left regretting not investing instead in Apple. While Leonid is correct in his assessment of Apple’s rise to dominance, I would have to disagree in his notion that Apple’s success makes Microsoft an undervalued play.
The fact of the matter is that (as a shareholder) I can say that Microsoft’s perceived irrelevance is the fault of its own. The company has been immaterial long before Apple’s prominent rise. There is no lack of opinion for why it has been so average and uninspiring, but the questions that should be asked is how can its value be restored? For me, the surest way for this to happen is to go in a different direction and replace its current CEO, Steve Ballmer.