Federal Reserve Chairman Ben Bernanke certainly has a lot of support when it comes to his economic policies. Considering where that the economy was on the brink of collapse a couple of years ago, the fact that the market is here thriving today is nothing short of remarkable. But even within such prosperous times, the Fed chairman is not without his long list of critics. As for me, when it comes to Mr. Bernanke, I have reserved judgment until I see how the rest of the year unfolds.
U.S. lacks autonomy
On Thursday, Bernanke told lawmakers what the market has known for the past 12 months - that Europe's crisis still threatens the U.S. recovery. But he did pledged that the Fed would do everything it can to prevent any spillover. This is also while he described the pace of the U.S. economic recovery as "frustratingly slow." I think this is a relief, and am extremely glad to have been issued this assurance. Pardon the sarcasm, but I can't help being a bit annoyed by these foreign concerns. While I appreciate the fact that global issues are often legitimately discussed, I think the greater concern should be that the U.S. economy is lacking in autonomy.
Last week, economic optimism spurred what continues to be a sustained buying of equities aided by the fact that claims for U.S. unemployment fell more than expected. This was a sign that companies were once again hiring and layoffs were on the decline. While complaints about the perceived slow growth continues, the fact of the matter is, not only is the economy indeed in recovery mode from the 3-year recession, but the unemployment rate has recently dropped to 8.5 percent in December, its lowest level in nearly three years. The frustrating part about all of this is that we still can't escape Europe.
Navigating through the mess
So you can kind of get a sense of why I think Bernanke is doing more of an adequate job relative to where we were three years ago, but the European shackles remain a huge burden. I think this feeling was also the consensus on the market Thursday as investors largely took a wait-and-see approach, since it appeared that stocks didn't change much. Friday's key employment report will signal which direction the market will go, but as evident from Thursday, the technology sector continues to be the king on the Street. But let's take a look at which stocks might be affected before and/or after the report that are currently already surging.
Research in Motion
Sirius XM - Target $2.50
With officially 5 trading days left towards its earnings announcement, many questions continue to be raised about the stock. Aside from the typical, "when to buy and when to sell," recently Fellow Seeking Alpha contributors Crunching Numbers and Rocco Pendola have asked (respectively), if Sirius is a conservative investment, and is Sirius a growth company? Both are certainly important questions to ask, and the answers depend upon your definition of the terms "growth" and "conservative."
While Sirius is not growing at the rate of dominant growth giants on the market, but it is fair to say that the company is still in its infancy - relatively speaking. But it should not be discounted that it is in fact growing based upon its recent rate of subscriber acquisitions. But in terms of a conservative investment, the answer is clearly no. But don't confuse this with a "bad investment." While it is not a "Microsoft-type", it certainly has outperformed many of the more conservative plays over the past several years. Another important question to ask is, where is the company going? While this question is often met with much speculation, I'm going to pause here and instead, on February 9, I'll give you my answer.
Research in Motion - Target undecided
One of the worst feelings in the stock market is being trapped in stock that you realize has limited upside but you don't want to close out at a loss. The feeling comes with anger and you watch other stocks take off, where your capital could be put to better use. This is where I am now with Research in Motion and frankly, I sometimes just throw my hands up in the air with disgust. But the interesting twist in all of this is that the stock is not the problem here; it is up almost 20 percent on the year. The problem is with the company's chronic poor decisions.
Upon hearing the first comments of the company's newly appointed CEO Thorsten Heins, I became even more convinced that, absent a new ownership team willing to do an complete 180, there is no way that RIM can survive its own ineptitude, much less be able to face Apple. Remarkably, the stock looks incredibly cheap by virtue of the P/E of 4, and yet it looks very expensive at the same time, mostly because of its seemingly limited upside. The stock should be sold while it is still in the green, or better yet, before its new CEO steps in front of another microphone.
Apple - Target $550
The company that does nothing but defy logic and all common sense keeps pushing the needle. As a sign of just how troubling things look for Research in Motion, a recent study shows that Apple has taken a big chunk of the corporate market, particularly in the area of financial services, a space once dominated by RIM. It also seems that Apple's dominance may yet prove too much for rival Amazon (AMZN) as its Kindle Fire is said to be slowly slipping in terms of sales. Perhaps this contributed to the recent poor showing of Amazon's earnings report.
The interesting thing here, while we continue to talk about Apple's ecosystem and its famed "halo effect" to highlight how its success has spurred the growth of many other companies, we sometimes discount how its success has adversely impacted several others - namely RIM, Dell, Hewlett-Packard as well as Sony, just to name a few. But this should be the least of its concerns, since I'm sure it remembers the death it almost suffered at the hands of Microsoft just a little over a decade ago.
Microsoft - Target $35
I'm always amazed at the notion that Microsoft can no longer grow. The company has a market cap of $251 billion, yet it is perceived to be dying, say several analysts. Granted, the mid to late 90s is not coming back, but the software giant is not going anywhere either. In its recent earnings announcement, the company reported revenue that met forecasts despite its previous warnings of slower PC growth. It posted fiscal second quarter earnings excluding items of 78 cents per share, up from 77 cents in the year-earlier period. Net income was $6.62 billion, down slightly from the $6.63 billion a year ago. Revenue was $20.9 billion, a 5 percent increase from $19.95 billion a year ago, helped by its Office, server software as well as Xbox businesses.
Speaking of the Xbox, the company is said to be developing the Kinect motion device for laptop computers. The goal is to bring support to both gaming and user-interface applications. I have to feel that this may indeed restore some of the company's appeal and alter its perceived lack of innovation qualities. This affirms what I have been saying for quite some time - although the company is no longer growing as rapidly as it use to, it still remains a technological power.
Cisco - Target $30
On Thursday, Cisco traded flat, but fell 2 cents short of reaching that all important $20 for the first time in several months. The fact that it has tested that mark and failed on a couple of occasions in recent trading, I continue to feel that the question plaguing investors is, what is its value? I think this is where many investors continue to struggle. But if you consider the company's current cash position, its ostensible debt coupled with sales metrics that are significantly higher than 13 years ago, it makes little sense to me how the market can justify such a low valuation for this company, even with its recent climb.
Admittedly, I have been highly critical of the company's management and its once perceived lack of direction, but purely from a fundamental perspective, the stock remains drastically undervalued. It has a book value per share of $8.24. It posts cash per share value of $7.28 and a forward P/E ratio of 10. If Cisco can wisely reinvest its capital to create more innovative ways to compete, I feel investors will be even more rewarded for their continued patience. Its current valuation presents (still) opportunities for those who are looking for value and are willing to set realistic horizons.