Ken T asks:
I'm interested to hear you take on CSCO. I think this is a case of over reaction to their guidance. In any case, the sentiment seems to be turning down to account for the end of QE2 in June. Volatility has certainly shot up as well. I'd be interested to hear your thoughts on both these topics.
Ken, thanks for the questions. Before I address them, I want to remind subscribers that I am hoping to be able to post more current information in a secure environment (i.e. not open to the public, like this blog), but we aren't there yet. I would add, though, that my new subscription blog service, My Own Analyst, addresses questions like these on a regular basis, in addition to offering actionable ideas both on names in the models on a short-term basis, stocks on my watchlist and even companies outside of my narrow focus. If anyone is interested, I have a brochure now available at http://ab.esiteasp.com/MOA.nxg
On CSCO, I clearly have been early. The rationale for buying it was valuation and sentiment driven, and they remain at play. The stock is frustrating me, but I believe that it should reward us eventually, as INTC and JNJ have done recently. With that said, it's not clear that a bottom is definitely in, but I expect that the lows, which were tested successfully on the open yesterday, are likely in. Curiously, most of the EPS estimates actually are rising slightly. While the guidance was light next quarter, they overachieved this quarter. Next quarter marks the end of their year.
On QE2, I think it's a non-event. Let's focus on the real issue, which is short-interest rates. They should be higher! I find it funny that rates rose after QE2 was announced, and they are falling now that everyone and his brother are citing concerns over the ending. The bigger issue is to figure out how the eventual rise in short-rates (in early 2012 is my best guess, but maybe sooner if Q2 GDP numbers are stronger than expected and Q3 data continues to be strong) will impact longer-term rates. As I have been suggesting all year and really since last summer, let's watch longer-term corporate bonds and high-yield. Stocks are still very inexpensive to these alternatives and are likely not at risk unless those start to really break down.
Comments