December 3, 2002
Cisco’s Silence Speaks Volumes
Futures were pointing to a strong move to the upside Monday morning, and those indices that have lagged the Nasdaq (Dow, S&P 500) looked set to reach their former highs. However, by 10:00 AM Monday morning the momentum had vanished…
AOL’s bleak outlook was the talk of the Street today. However, what wasn’t said by Cisco may have been more important: During an analyst meeting today Cisco CEO, John Chambers, said that the company would not provide any guidance. What’s the big secret John?
Make no mistake about it, if Cisco could have said something, anything, positive the company would have. Remember that Chambers was quick to tout that backlog orders had been increasing a month ago, and earlier in November Cisco projected that sales for the upcoming quarter be flat to down 4 percent from $4.8 billion. Point being, Cisco loves talking about forward projections…that they didn’t have much to say today can, and was (CSCO -3.59%), construed as a negative.
Other companies with news today were Nokia, which forecasted handset 2003 volume below some analyst estimates and Ford, which said it will miss its earnings estimates. As for Ford, the company said yesterday a $5 billion pension shortfall is peanuts when you look at how cheap stocks are. Today, and even as the company shuts down plants and warns on earnings, the roses where given a sniff:
“Overall, we remain optimistic about the prospects for auto sales in the months ahead as consumer fundamentals remain positive.”
Jim O'Connor, vice president of the automaker's North America sales
Are Ford’s conclusions on ‘consumer fundamentals’, much like Greenspan’s opinion, misguided?
With Ford slamming autos, AOL hitting advertisers, and Nokia denting tech, the markets had little room for upside today. Moreover, bank stocks, after the Philadelphia bank index struck an intraday high of 799.88 yesterday, were also weak (783.71). In sum, no new leadership for the markets means no extension of the current rally.
Considering bears were behind the eight ball before Monday’s session began the trading activity since 10:00 AM Monday has been surprising. All it took was 1 economic report, a weaker then expected ISM Manufacturing report, to cast doubt on the markets recent gains.
Those stocks that didn’t participate in the latest rally rose today, including, Alcohol stocks (BFB), and Tobacco (UST, MO). Not surprisingly, tech stocks were the weakest. Friday’s jobs report is key.
Wish List Watch
A few Wish List stocks have rallied in recent weeks, including WMS Industries and Nordic American Tankers. The rally in NAT is understandable given that higher tanker rates should enable the company to make a higher dividend payment in the upcoming quarter. However, the rally in WMS, which has put the stock solidly above $15, is somewhat surprising.
To begin with, WMS’s software problems, and the costs associated to fully remedy these problems, are not expected to be resolved until mid-late 2003. Don’t forget also, that the company has encountered delays since August 2001.
Nevertheless, investors seem taken by the fact that Mr. Redstone continues to buy shares and the fact that States are more likely to loosen gaming legislations and embrace gambling in the near term to try and combat deficits. http://pokermag.com/managearticle.asp?c=150&a=402
Moreover, it can be assumed, that part of the latest rally is the result of short covering; freakish spikes occurred previously in 2002, and short interest is running above 10%.
Point being, and keeping in mind that we initially selected WMS at $20, it slid to $9 and is now trading around $17, the opportunities to dollar cost average may already be behind us. It will likely take tangible improvement in WMS’s operations, or takeover announcement (a remote possibility) for the stock to reacquire a $20 threshold.
WMS EPS
Using current earnings projections, WMS is trading at roughly 70 times June 2003 earnings, and 36 times June 2004 earnings. Obviously earnings can not be used as an accurate guide when forecasting WMS’s stock price, because if the company continues to recover from its problems these estimates would surely escalate quickly (it may take until 2004 before its P/E is worth considering). However, even when using WMS’s best year as a guide ($44.4 million in after tax profit in 2000), the company would currently be trading at 12 times earnings (31 million outstanding shares).
Point being, WMS is a long way from showing the kind of improvement which would make it undervalued based upon earnings. We do not have a sell target on WMS, but would only seek only to add shares on weakness.
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