Cisco Downgraded:
Wrong! Dispatches from the Front: Cisco Downgraded! Here's What It Means
By James J. Cramer
10/5/98 8:09 AM ET
So now the jaws of the bear are firmly wrapped around the telco-equipment stocks. With Cowen's downgrade of Cisco (CSCO:Nasdaq) today, there are no idols left unsmashed.
Holy cow, Cisco downgraded! That's impact with a capital "I."
As the TSC Summit outlined so well this weekend, pricing pressures have finally come to the telco-equipment sector. We first saw it in Newbridge (NN:NYSE), then Alcatel (ALA:NYSE), then Northern Telecom (NT:NYSE). It was only natural that Lucent (LU:NYSE) and Cisco would get hit.
These are truly frightening times. (The PeopleSoft (PSFT:Nasdaq)/enterprise software downgrades last week were similar to the chill that will be seen in telco equipment today.)
I insured my Cisco with puts for fear of this happening, but it is still jarring because Cisco's business is still very strong. What this downgrade says is, we don't even care anymore about the guys with strong earnings. If the stock has profits, if it has not corrected, it will. For me, that means, again, look at the oil drillers. Nobody has a profit in them, they are cheap and the winter might be a bit colder than expected.
And stay away from groups where the profits are still outsized. That's the real area of vulnerability. |
