Some ominous signs are brewing for the tech sector and they appear to be pointing to downside risk for many tech stocks when earnings season begins in the first quarter of 2012. Two major issues for tech companies include the recent massive flooding in Thailand which has disrupted the PC supply chain for many companies. The other big issue is the weakening economy in Europe due to the debt crisis. Most large tech companies derive a substantial portion of total revenues from Europe. With governments and European companies looking to cut budgets, the first quarter of 2012 could be the first in which the real impact of global events can be felt in either earnings misses or weak guidance.
A recent article in the Financial Times details some of the new-found weakness in the tech sector and states: “We have seen a dramatic deceleration in new business for Salesforce.com (NYSE:CRM) and slowing growth from Red Hat (NYSE:RHT) recently,” said analysts at JP Morgan. “This may be just the beginning of a long list of IT companies that struggle in the next quarter or more.” Read the entire article here.
Below are a number of tech companies that could see an earnings miss or issue weak guidance when earnings are announced in the coming weeks. It might make sense to wait for pullbacks in these stocks and take advantage of the possible overreaction in any sell off by buying the dip:
Oracle Corp. (NYSE:ORCL) is a leading provider of enterprise software. This company has a great management team so it is considered a tech bellwether. Cramer has given Oracle shares a buy rating in the past, but after the company missed earnings he backed off on the stock. Oracle posted on a 2% increase in new software licenses, while many investors were expecting a 16% increase. It's very rare for Oracle to report an earnings miss and it could be a harbinger of more earnings misses and weak guidance for other major tech companies.
Here are some key points for ORCL:
- Current share price: $25.75
- The 52 week range is $24.72 to $36.50
- Earnings estimates for 2011: $2.35 per share
- Earnings estimates for 2012: $2.57 per share
- Annual dividend: 24 cents per share which is equivalent to a yield of .9%
Cisco Systems, Inc. (NASDAQ:CSCO) is a leading networking hardware company. After hitting a 52 week low early in 2011, the stock has been trending higher. CEO John Chambers has begun to transform Cisco with a restructuring which included layoffs, other cost cutting moves, and a refocusing on the core products. This stock looks like a great buy on dips below $17.
Here are some key points for CSCO:
- Current share price: $18.41
- The 52 week range is $13.30 to $22.34
- Earnings estimates for 2011: $1.77 per share
- Earnings estimates for 2012: $1.93 per share
- Annual dividend: 24 cents per share which yields 1.3%
Microsoft Corporation (NASDAQ:MSFT) is a leading maker of computer software and hardware products as well as consumer products, such as Xbox and services like Skype. Microsoft could see earnings impacted by the economic weakness in Europe. Price targets for Microsoft have been revised lower recently and more analysts might jump on board soon. However, this company has billions in cash on the balance sheet and a solid dividend yield that makes it worth buying on any major dips to about $24.
Here are some key points for MSFT:
- Current share price: $25.98
- The 52 week range is $23.65 to $29.46
- Earnings estimates for 2011: $2.74 per share
- Earnings estimates for 2012: $3.03 per share
- Annual dividend: 80 cents per share which yields 3.1%
Intel Corporation (NASDAQ:INTC) is a leading maker of chips used in notebooks, netbooks, desktops, mobile phones, consumer electronics devices, etc. Intel has a strong balance sheet, and sells for only about 10 times earnings. Intel shares recently dipped on news that the next quarter would be impacted by floods in Thailand. The company could also see lower sales from Europe and this may not yet be priced into the stock.
Here are some key points for INTC:
- Current share price: $24.54
- The 52 week range is $19.16 to $25.78
- Earnings estimates for 2011: $2.37 per share
- Earnings estimates for 2012: $2.39 per share
- Annual dividend: 84 cents per share which yields 3.6%
Jabil Circuit, Inc. (NYSE:JBL) provides manufacturing and design services for a variety of electronics products like circuit boards. This stock hit recent lows around $15 per share in October. With a decent dividend and a reasonable price to earnings ratio, this looks like a good buy on any dips, especially back to the $15 level.
Here are some key points for JBL:
- Current share price: $19.91
- The 52 week range is $13.94 to $23.09
- Earnings estimates for 2011: $2.57
- Earnings estimates for 2012: $2.92
- Annual dividend: 32 cents per share which yields 1.6%
NVIDIA Corporation (NASDAQ:NVDA) is a leading maker of 3D graphics chips for the computer industry. Since this company makes specialty chips for higher-end graphics many technology products, it might be better insulated on a relative basis. However, if major companies are seeing a slow down in Europe and other countries, this company could be impacted as well. There might be a chance to buy this stock around $12 or less, if earnings are weaker than expected.
Here are some key points for NVDA:
- Current share price: $13.97
- The 52 week range is $11.47 to $26.17
- Earnings estimates for 2011: $1.02
- Earnings estimates for 2012: $1.08
- Annual dividend: none
Juniper Networks, Inc. (NYSE:JNPR) is a leading maker of networking equipment. This stock fell on weak results a few weeks ago but it has rebounded recently. Cramer likes this stock and that might have helped support a rebound. I think Juniper shares could be heading lower after earnings and guidance in the first quarter of 2012 are released. A dip to about $17 or less, would make more sense for long term investors.
Here are some key points for JNPR:
- Current share price: $20.49
- The 52 week range is $16.67 to $45.01
- Earnings estimates for 2011: $1.25
- Earnings estimates for 2012: $1.43
- Annual dividend: none
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.