The Daily Dose: Four Reasons to Avoid Cisco

 | Feb 13, 2014 | 11:30 AM EST  | Comments
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Cisco's (CSCO) CEO John Chambers recently delivered a hype-filled keynote address at a widely covered tech event. I saw that rare occurrence and planted a mental red flag in my brain that Cisco's quarter and outlook would stink, against already lowered expectations.

Why did I think like this? Chambers clearly wanted to focus everyone's eyes on the company's positives, pitching it as the major player in a growing and evolving tech industry, as opposed to the bruised dog getting eaten alive by rabid younger pups. I am receiving considerable interest in a Cisco-related tweet released by Belus Capital Advisors prior to the earnings announcement. Unfortunately, I am unable to share details, but here is the tweet:

Belus

Four Impressions From Cisco's Earnings

Don't buy the stock. There are better opportunities in tech land. Allow Cisco's CFO to pour the company's free cash flow into buying the stock at seemingly inflated levels. Here are my reasons:

  1. U.S. business led the sales declines. That is disturbing on multiple fronts because it's obvious the business is continuing to have profound difficulty thwarting competitors.
  2. Cisco delivered the results "we expected," according to Chambers. So Cisco delivered up to its own subpar expectations, gotcha. That does not make a case for higher price-to-earnings ratio (P/E) multiple or earnings growth assumptions.
  3. Chambers noted he is "pleased with the process we have made in managing through tech transitions." Yeah, well, that doesn't fit too snugly with the "Internet of Everything" speech shared a couple weeks ago.
  4. "Current financials are strong," stated Cisco. Problem: The company is not strengthening.

Why Retail Sales Will Be Quite Cold

Retail sales day is here, so be excited! Actually, hold the enthusiasm. The figures are likely to be ice cold (other than at home improvement centers). Watch how consumer discretionary stocks trade on the softness of the report for any indication of a tradable bottom in the sector, which will have to be sold in front of pretty bad earnings outlooks shortly.

  1. Weather is a major force as mall openings have been delayed for snow removal and are also closing early ahead of major storms.
  2. Clearance activity on early spring now well under way, and that is being mixed with still leftover holiday merchandise.
  3. High margin parts of stores, for example, women's apparel at a J.C. Penney JCP entrance, continue to be on perpetual discount -- even during peak weekend shopping periods.

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