lol... a little knowledge, it is indeed a dangerous thing.
But useful to have when investing. Particularly right about now.
This Alice in Wonderland situation we are currently experiencing is just plain nuts. It is about time people at least TRIED to take off the rose colored glasses. This doesn't mean we should all be doom and gloom and wringing our hands about the stock going to zero... that's just as dumb to the downside.
But the closer we take a healthy look at the risks, the faster we can get to a rational assessment of the current situation. So let's get them out on the table, and before we discount them all, try to size them up.
Until then, it is difficult for me to contemplate increasing or establishing a position in CSCO, except speculatively.
Baseline: Stock trading at high multiples of book, earnings, sales etc. Bouncing up and down like a yoyo, and still below the bottom predictions of the majority of this threads main and knowledgeable contributors.
So for those who want to speculate wildly... well, CSCO's as good a place as any. But for those who would invest, it's a different question. More than one. Off the top of my head, I can think of a few.
Question One: Outlook? Chambers' has declared zero visibility, and earnings are due in a couple of weeks. What skeletons still lurk? Will those who argued against the clear evidence of the inventory problem argue even more strenuously against less obvious problems? Rumors abound of hefty charges. How close to a billion will it be? Over how many quarters?
Question Two: Cash Flow? The company is making noises that sound to these untrained ears like "cash flow sucks". Sucks like the sound of that whirlpool in the drain of the tub. Desperate measures are not the stuff of prosperous times. Nor preparatory either. The company is not preparing itself for a surge of growth. Not when it's laying off talent. Or am I missing something here?
Question Three: Business Health? The Business Model has fundamentally shifted. For those who care, my breakdown: Selling Internet Gear, Investment Banking and Selling Slices. These last two sideline businesses which should command the PE of a bank and something less than zero respectively have been subsidizing the growth of the first. And their "E" contributions are being fully factored into the "P" as though it's all core. And are evaporating faster than you can say "underwater stock options". So, how well does the Core business stand on its own?
Question Four: Customer Environment? The core business has run into a brick wall. Not due to the company, but because every IT manager in North America and most of those in Europe has suddenly been disempowered by a cash-conscious board of directors of their own. It is hard to double the amount of money you spend on CSCO gear in such a climate. Easier to cut it in half. Hmmm... let's rub a few neurons together... can we estimate how that might effect CSCO's revenues?
Question Five: Emerging New markets? This is where the growth must come from. Not only growth to grow the top line, but also to make up for shrinkage in established markets. CSCO is now so big that a small percentage shrinkage in its current markets dominates a 100% share of projected nearby market segments. Good thing they bought all those startups. Shame about all that competition out there. What's the next hundred-billion dollar market CSCO is going to totally dominate if it isn't Optical and it isn't CRM?
Question Six: Growth strategy? What is it, if not acquisition. Even that is not going so well. Monterey for example, turned out to be a $3M a person recruiting campaign. There are cheaper headhunters out there. Particularly when companies are laying off talent. With new standards for purchase accounting, companies can still sweep costs under the rug... but the bulge of dust is a lot more visible. So how are we going to see growth, anyway?
Question Seven: Any other questions?
Maybe we should be seeking answers, instead of crowing gleefully about a possible uptick trend in the stock price based on two days' worth of gap up in the morning.
At least, that was what I was trying to say...
John. |
