Cisco Shares Jump Over 8% After Earnings Beat; Target Price $55 in Best Case

Cisco reported better-than-expected revenue and profit in the first quarter of fiscal 2021 as demand for its network services, teleconferencing tools and cybersecurity software surged amid COVID-19 pandemic, sending its shares up over 8% in after-hours trading on Thursday.

The network equipment provider said its revenue plunged 9% to $11.93 billion in the first quarter of fiscal 2021, which ended on Oct. 24, beating the market expectations of $11.85 billion.

Cisco reported net income on a generally accepted accounting principles (GAAP) basis of $2.2 billion or $0.51 per share, and non-GAAP net income of $3.2 billion or $0.76 per share. That was higher than Wall Street’s consensus of 70 cents per share.

“Although Cisco is benefiting in certain areas, like an increased need for remote collaboration and cloud security, its core products have been hampered by soft networking infrastructure upgrade demand amid widespread sheltering-in-place,” said Mark Cash, equity analyst at Morningstar.

“Nonetheless, we believe that Cisco is turning the corner after a few quarters of declining sales due to the pandemic and we expect to see improved performance in the second quarter. With Cisco more positive about the demand environment ahead, shares increased over 7% after reporting. We are maintaining our $48 fair value estimate and believe shares are undervalued,” Cash added.

Cisco forecasts GAAP EPS to be between $0.55 to $0.60 in the second quarter of fiscal 2021.

Post this announcement, Cisco shares climbed over 8% to $41.63 in extended trading on Thursday. However, the stock is down about 20% so far this year.

Executives’ comments

“Cisco is off to a solid start in fiscal 2021 and we are encouraged by the signs of improvement in our business as we continue to navigate the pandemic and other macro uncertainties,” said Chuck Robbins, chairman and CEO of Cisco.

“Our focus is on winning with a differentiated innovative portfolio, long-term growth and being a trusted technology partner offering choice and flexibility to our customers.  We see many great opportunities ahead as every company in every industry is accelerating its digital-first strategy,” Robbins added.

“Our Q1 results reflect good execution with strong margins in a challenging environment,” said CFO of Cisco, Kelly Kramer, who will be succeeded by Scott Herren from December 18.

“We continued to transform our business through more software offerings and subscriptions, driving 10% year over year growth in remaining performance obligations. We delivered strong growth in operating cash flow and returned $2.3 billion to shareholders,” Kramer added.

Cisco Stock Price Forecast

Twenty equity analysts forecast the average price in 12 months at $47.33 with a high forecast of $55.00 and a low forecast of $36.00. The average price target represents a 22.39% increase from the last price of $38.67. From those 20 analysts, eleven rated “Buy”, nine rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $54 with a high of $65 under a bull-case scenario and $33 under the worst-case scenario. The firm currently has an “Overweight” rating on the multinational technology conglomerate’s stock. Cisco Systems had its price target raised by research analysts at Credit Suisse Group to $45 from $36. The brokerage currently has a “neutral” rating on the network equipment provider’s stock.

Several other analysts have also recently commented on the stock. Bank of America cut their price objective on shares of Cisco Systems to $50 from $52 and set a “buy” rating. ValuEngine downgraded shares to a “sell” rating from a “hold”. Royal Bank of Canada reiterated a “buy” rating and set a $48 price target. Goldman Sachs Group reiterated a “neutral” rating and issued a $45 price target.

Analyst Comments

“Infrastructure revenue likely to decline with a more limited IT budget environment, but pockets of growth can help stabilize earnings. The higher proportion of recurring sales limits downside volatility relative to previous cycles, but still not immune,” said Meta Marshall, equity analyst at Morgan Stanley.

“Security/analytics capabilities should help Cisco stay important to IT budgets even as cloud transition accelerates. Security and applications growth (primarily inorganic) help improve margins of the overall business.”

Upside and Downside Risks

Risks to Upside: 1) Software and services business drive growth. 2) Accelerated replacement cycles from product refreshes support growth in spite of weaker macro conditions. 3) A re-acceleration in GDP and therefore IT spending – highlighted by Morgan Stanley.

Risks to Downside: 1) Federal spending disruption. 2) Prolonged macro downturn and subsequent lack of recovery in networking spend. 3) Security sales materially decelerate given the disruption in leadership.

Check out FX Empire’s earnings calendar

Legacy Businesses Weigh On Cisco Systems Outlook

Dow component Cisco Systems Inc. (CSCO) reports fiscal Q1 2021 earnings on Nov. 12, with Wall Street analysts looking for a profit of $0.70 per-share on $11.85 billion in revenue. If met, the earnings-per-share (EPS) would mark a 17% profit decline compared to the same quarter in 2019. The stock sold off more than 5% after warning about the current quarter’s earnings and revenue in August and has relinquished another 16% since that time.

Hardware Revenue In Multiyear Decline

Revenue from legacy routing and switching businesses has been declining for many quarters, forcing the company to reinvent itself through software and services. This approach has worked well for other old school tech giants but income from the new divisions has, so far at least, failed to replace lost hardware revenue. Additional investment, acquisitions, and restructuring may be needed to cover the shortfall and get Cisco back into mid-to-high single digit growth.

Citigroup recently downgraded Cisco to ‘Neutral’, with analyst Jim Suva warning that “Cisco’s switching and routing sales, or about 40% of total sales, remain on the decline and we are less confident in the company’s ability to return to growth or gain market share, particularly in declining markets. As a result, we do not expect Cisco’s hardware segment (Infrastructure Platforms) to return to growth near term.

Wall Street And Technical Outlook

Wall Street consensus is split right down the middle, with a ‘Moderate Buy’ rating based upon 10 ‘Buy’ and 10 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $36 to a Street-high $55 while the stock is set to open Tuesday’s U.S. session right at the low target. There’s plenty of room for upside in this humble configuration but the company isn’t likely to exceed modest expectations later this week.

Cisco topped out about 24 points below 2000’s all-time high at 82.00 in April 2019 and broke down in August, entering a decline that immediately sliced through support at the 200-day moving average. The stock fell to a two-year low during the first quarter’s pandemic decline and failed a second attempt to remount moving average support in August. It’s now trading just four points above the March low, raising odds it will test and possibly break that level in coming months.

For a look at all of today’s economic events, check out our economic calendar.

Stock Pick Update: September 2 – September 8, 2020

The broad stock market has extended its medium-term uptrend in the last five trading days (August 26 – September 1). The S&P 500 index has set new record high of 3,528.03 on Tuesday, as it further extended its rally after breaking above February 19 high of 3,393.52. Five months ago on March 23, the market sold off to new medium-term low of 2,191.86. It was a stunning 35.4% below February 19 record high of 3,393.52. The corona virus and economic slowdown fears erased more than a third of the broad stock market value. But since then stocks rallied 61.0%.

The S&P 500 index has gained 2.22% between August 26 and September 1. In the same period of time our five long and five short stock picks have gained 1.03%. So stock picks were relatively weaker than the broad stock market. Our long stock picks have gained 2.02% and short stock picks have resulted in a small gain of 0.04%.

There are risks that couldn’t be avoided in trading. Hence the need for proper money management and a relatively diversified stock portfolio. This is especially important if trading on a time basis – without using stop-loss/ profit target levels. We are just buying or selling stocks at open on Wednesday and selling or buying them back at close on the next Tuesday.

If stocks were in a prolonged downtrend, being able to profit anyway, would be extremely valuable. Of course, it’s not the point of our Stock Pick Updates to forecast where the general stock market is likely to move, but rather to provide you with stocks that are likely to generate profits regardless of what the S&P does.

This means that our overall stock-picking performance can be summarized on the chart below. The assumptions are: starting with $100k, no leverage used. The data before Dec 24, 2019 comes from our internal tests and data after that can be verified by individual Stock Pick Updates posted on our website.

Below we include statistics and the details of our three recent updates:

  • September 1, 2020
    Long Picks (August 26 open – September 1 close % change): FIS (+4.53%), MAR (+4.82%), DISH (+1.59%), PXD (-2.85%), WEC (+2.02%)
    Short Picks (August 26 open – September 1 close % change): PSX (-4.28%), D (-0.35%), ANTM (-1.31%), AAPL (+6.34%), HD (-0.62%)Average long result: +2.02%, average short result: +0.04%
    Total profit (average): +1.03%
  • August 25, 2020
    Long Picks (August 19 open – August 25 close % change): VFC (+3.87%), IBM (-0.15%), CAT (+1.91%), CVX (-1.34%), SCHW (+1.72%)
    Short Picks (August 19 open – August 25 close % change): WMB (-2.11%), TROW (-1.15%), XEL (-1.84%), HD (-0.46%), AAPL (+7.62%)Average long result: +1.20%, average short result: -0.41%
    Total profit (average): +0.40%
  • August 18, 2020
    Long Picks (August 12 open – August 18 close % change): BA (-7.49%), SCHW (-1.55%), CXO (-4.91%), BXP (-5.58%), MSI (+5.14%)
    Short Picks (August 12 open – August 18 close % change): CCI (+1.85%), AAPL (+4.58%), CHTR (+3.33%), ROP (+0.48%), SPGI (+3.65%)Average long result: -2.88%, average short result: -2.78%
    Total profit (average): -2.83%

Let’s check which stocks could magnify S&P’s gains in case it rallies, and which stocks would be likely to decline the most if S&P plunges. Here are our stock picks for the Wednesday, September 2 – Tuesday, September 8 period.

We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (September 2) and sold or bought back on the closing of the next Tuesday’s trading session (September 8).

We will provide stock trading ideas based on our in-depth technical and fundamental analysis, but since the main point of this publication is to provide the top 5 long and top 5 short candidates (our opinion, not an investment advice) for this week, we will focus solely on the technicals. The latter are simply more useful in case of short-term trades.

First, we will take a look at the recent performance by sector. It may show us which sector is likely to perform best in the near future and which sector is likely to lag. Then, we will select our buy and sell stock picks.

There are eleven stock market sectors: Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Technology, Communications Services, Utilities and Real Estate. They are further divided into industries, but we will just stick with these main sectors of the stock market.

We will analyze them and their relative performance by looking at the Select Sector SPDR ETF’s.

Based on the above, we decided to choose our stock picks for the next week. We will choose our top 3 long and top 3 short candidates using trend-following approach, and top 2 long and top 2 short candidates using contrarian approach:

Trend-following approach:

  • buys: 1 x Technology, 1 x Communication Services, 1 x Consumer Discretionary
  • sells: 1 x Utilities, 1 x Energy, 1 x Real Estate

Contrarian approach (betting against the recent trend):

  • buys: 1 x Utilities, 1 x Energy
  • sells: 1 x Technology, 1 x Communication Services

Trend-following approach

Top 3 Buy Candidates

CSCO Cisco Systems, Inc. – Technology

  • Possible short-term bottoming pattern along $42
  • The resistance level of $45
  • The support level is at $40

DIS Walt Disney Co. – Communication Services

  • Stock remains above month-long upward trend line
  • Possible uptrend continuation
  • The resistance level of $135.0
  • The support level is at $127.5

MAR Marriott Intl Inc New – Consumer Discretionary

  • Stock fluctuates after breaking above short-term downward trend line
  • The resistance level and an upside profit target level is at $115, marked by previous high

Summing up, the above trend-following long stock picks are just a part of our whole Stock Pick Update. The Technology, Communication Services and Consumer Discretionary sectors were relatively the strongest in the last 30 days. So that part of our ten long and short stock picks is meant to outperform in the coming days if the broad stock market acts similarly as it did before.

We hope you enjoyed reading the above free analysis, and we encourage you to read today’s Stock Pick Update – this analysis’ full version. There, we include the stock market sector analysis for the past month and remaining long and short stock picks for the next week. There’s no risk in subscribing right away, because there’s a 30-day money back guarantee for all our products, so we encourage you to subscribe today.

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Paul Rejczak
Stock Trading Strategist
Sunshine Profits – Effective Investments through Diligence and Care

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Disappointing Forecast from Cisco Systems Drags Dow Lower

The major U.S. stock indexes finished mixed on Thursday with the NASDAQ Composite posting the lone gain. The S&P 500 Index briefly traded above its record closing high level for a second session earlier in the session, but sellers regained control into the close. The Dow traded higher early but eventually fell in the wake of a disappointing forecast from Cisco Systems, Inc. A sharp rise in Apple, Inc. provided the primary support for the NASDAQ.

In the cash market on Thursday, the benchmark S&P 500 Index settled at 3373.43, down $6.92 or -0.23%. The blue chip Dow Jones industrial Average finished at 27896.72, down 80.12 or -0.32% and the technology-driven NASDAQ Composite closed at 11042.50, up 30.26 or +0.32%.

Cisco’s First-Quarter Forecast Disappoints Shares Fall

Cisco Systems, Inc. on Wednesday forecast first-quarter revenue and profit below Wall Street estimates and laid out a restructuring plan, as the coronavirus crisis forced its clients to hold back spending, Reuters reported. Shares of the top network equipment maker fell nearly 5% ahead of the opening on Thursday.

Cisco Lays Out Restructuring Plan

The restructuring, which includes a voluntary early retirement program and layoffs, will begin this quarter, the company said, adding that it expected to recognize a related one-time charge of about $900 million.

On a conference call with investors, Chief Executive Chuck Robbins said Cisco also plans to reduce its expenses by $1 billion on an annualized basis “over the next few quarters.”

Cisco Revenue Expected to Drop

Cisco expects current-quarter revenue to drop between 9% and 11% from last year, implying a range of between $11.71 billion and $11.97 billion, while analysts had expected $12.25 billion.

It also forecast adjusted earnings of 69 cents to 71 cents per share, below estimates of 76 cents, according to Refinitiv IBES data.

For the fiscal fourth quarter ended July 25, revenue fell about 9% to $12.15 billion (9.31 billion pounds), but beat estimates of $12.08 billion, as more people working from home boosted demand for its web security and teleconferencing tools.

Excluding items, Cisco earned 80 cents per share in the quarter, beating estimates of 74 cents.

Cisco CFO to Retire

The company also announced that Chief Financial Officer Kelly Kramer will retire from Cisco, but will remain with the company until a successor is found.

Kramer told Reuters that Cisco will continue to acquire smaller companies to help boost revenue and that its $2.84 billion acquisition of Aracia Communications Inc. remains on track. The deal was slated to close before the end of Cisco’s fiscal 2020 last month, but the company said it is still awaiting approval from Chinese regulators.

“We still feel good ab out it. We’re responding to their requests as fast as we can to make sure there are no issues,” Kramer said. “We are focused on getting it done.”

For a look at all of today’s economic events, check out our economic calendar.

Cisco Tumbles After Soft Q1 Earnings Guidance

Cisco Systems, Inc. (CSCO) plunged 6.44% in after-hours trade Wednesday on the back of declining fiscal Q4 revenues and downbeat guidance for the current quarter. The company, which manufactures networking hardware and security software, reported quarterly sales of $12.15 billion, down from year-ago revenues of $13.43 billion.

Meanwhile, adjusted earnings for the period came in at 80 cents per share compared to 83 a share in the quarter ended July 2019. However, the San Jose-based company’s top- and bottom-line figures surpassed Wall Street expectations by 0.50% and 8%, respectively.

Through Wednesday’s close, Cisco stock has a market capitalization of $203 billion, yields an enticing 3.05%, and trades just 2.52% higher on the year. Performance has improved over the past three months, with the shares gaining around 12%.

Soft Forward Guidance

Management forecast Q1 adjusted earnings guidance of 69 cents to 71 cents and a revenue decline of 7% to 9%.  Analysts had projected earnings of 76 cents and $12.25 billion in sales for the quarter, representing about a 7% decline.

Software Focus

The company said it plans to acquire network intelligence company ThousandEyes in the quarter for $1 billion to provide a range of remote work and learning solutions. In recent years, Cisco has made a strategic shift to generate more revenue from software and service solutions to compete with cloud offerings from tech heavyweights Amazon.com, Inc. (AMZN), Microsoft Corporation (MSFT), and Alphabet Inc. (GOOGL).

“By the end of fiscal 2020, we achieved our goal of more than half of our revenue coming from software and services, and this strategy continues to resonate with customers as they digitize their organizations,” Cisco Chief Executive Chuck Robbins said in a statement accompanying the quarterly results, per MarketWatch.

Wall Street Outlook

Despite the stock’s lackluster performance relative to the technology sector, analysts remain modestly bullish. The stock receives 13 ‘Buy’ ratings, 1 ‘Overweight’ rating, and 13 ‘Hold’ ratings. Price targets range from as high as $60 to as low as $41, with a consensus of $50.05. This represents a 4% premium to Wednesday’s $48.10 close.

Technical Outlook and Trading Tactics

Since testing the low 30s in mid-March, Cisco shares have made a Nike swoosh-like recovery. Over the past two months, the price looks to be carving out the right shoulder of an inverse head and shoulders pattern – a formation that typically signals a market bottom. Furthermore, the 50-day simple moving average (SMA) crossed above the 200-day SMA last month to indicate a new uptrend. Traders should use any weakness as a buying opportunity, providing the stock remains above the June 11 low at $43.64. Look for a move up to the $57.50 level, where price funds overhead resistance from a horizontal trendline.

Stock Pick Update: May 20 – May 26, 2020

The broad stock market has extended its short-term consolidation in the last five trading days (May 13 – May 19). Almost two months ago on March 23, the S&P 500 index sold off to new medium-term low of 2,191.86. It was a stunning 35.4% below February 19 record high of 3,393.52. The corona virus and economic slowdown fears have erased more than a third of the broad stock market value. Then we saw huge come-back rally, as the index got back above 2,900 mark. Recently the S&P 500 index has been trying to break above the resistance level of around 2,950.

The S&P 500 index has gained 1.99% since last Wednesday’s open. In the same period of time our five long and five short stock picks have lost 0.17%. So stock picks were relatively weaker than the broad stock market. However, our long stock picks have gained 2.14% and they have outperformed the index. Short stock picks have resulted in a loss of 2.48%. The overall results remain relatively better than the S&P 500 index over last months.

If stocks were in a prolonged downtrend, being able to profit anyway, would be extremely valuable. Of course, it’s not the point of our Stock Pick Updates to forecast where the general stock market is likely to move, but rather to provide you with stocks that are likely to generate profits regardless of what the S&P does.

This means that our overall stock-picking performance can be summarized on the chart below. The assumptions are: starting with $100k, no leverage used. The data before Dec 24, 2019 comes from our internal tests and data after that can be verified by individual Stock Pick Updates posted on our website.

Below we include statistics and the details of our three recent updates:

  • May 19, 2020
    Long Picks (May 13 open – May 19 close % change): SLB (+1.42%), CSCO (+2.74%), NWSA (+6.12%), CCI (-1.04%), CB (+1.46%)
    Short Picks (May 13 open – May 19 close % change): AVB (+2.72%), C (+5.79%), AEP (-0.45%), COP (+4.02%), AAPL (+0.32%)

    Average long result: +2.14%, average short result: -2.48%
    Total profit (average): -0.17%

  • May 12, 2020
    Long Picks (May 6 open – May 12 close % change): SLB (+5.17%), WYNN (-2.24%), MLM (-7.68%), MKC (+4.97%), GE (-3.22%)
    Short Picks (May 6 open – May 12 close % change): SYY (-3.33%), CAT (-4.81%), XEL (-7.15%), COG (-6.68%), AMZN (+1.18%)

    Average long result: -0.60%, average short result: +4.16%
    Total profit (average): +1.78%

  • May 5, 2020
    Long Picks (Apr 29 open – May 5 close % change): MPC (+4.50%), GILD (-5.75%), LIN (-3.19%), GE (-7.19%), HIG (-13.29%)
    Short Picks (Apr 29 open – May 5 close % change): UPS (-3.53%), SPGI (-2.59%), SO (-6.06%), COG (-1.16%), AMGN (-1.06%)

    Average long result: -4.98%, average short result: +2.88%
    Total profit (average): -1.05%

Let’s check which stocks could magnify S&P’s gains in case it rallies, and which stocks would be likely to decline the most if S&P plunges. Here are our stock picks for the Wednesday, May 20 – Tuesday, May 26 period.

We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (May 20) and sold or bought back on the closing of the next Tuesday’s trading session (May 26).

We will provide stock trading ideas based on our in-depth technical and fundamental analysis, but since the main point of this publication is to provide the top 5 long and top 5 short candidates (our opinion, not an investment advice) for this week, we will focus solely on the technicals. The latter are simply more useful in case of short-term trades.

First, we will take a look at the recent performance by sector. It may show us which sector is likely to perform best in the near future and which sector is likely to lag. Then, we will select our buy and sell stock picks.

There are eleven stock market sectors: Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Technology, Communications Services, Utilities and Real Estate. They are further divided into industries, but we will just stick with these main sectors of the stock market.

We will analyze them and their relative performance by looking at the Select Sector SPDR ETF’s.

Based on the above, we decided to choose our stock picks for the next week. We will choose our top 3 long and top 3 short candidates using trend-following approach, and top 2 long and top 2 short candidates using contrarian approach:

Trend-following approach:

  • buys: 1 x Energy, 1 x Communication Services, 1 x Technology
  • sells: 1 x Real Estate, 1 x Utilities, 1 x Consumer Staples

Contrarian approach (betting against the recent trend):

  • buys: 1 x Real Estate, 1 x Utilities
  • sells: 1 x Energy, 1 x Communication Services

Trend-following approach

Top 3 Buy Candidates

SLB Schlumberger Ltd. – Energy

  • Stock remains within a consolidation following April’s rebound
  • The resistance level of $19
  • Initial upside profit target level of $22-24

TWTR Twitter, Inc. – Communication Services

  • Potential uptrend resuming following breaking above bull flag pattern
  • Upside profit target levels of $31 and $35
  • The support level remains at $27

CSCO Cisco Systems, Inc. – Technology

  • The market broke above its recent consolidation (bull flag pattern)
  • The resistance levels of $45.50 and $48.00 (upside profit target levels)
  • The support level of $43.00

Summing up, the above trend-following long stock picks are just a part of our whole Stock Pick Update. The Energy, Communication Services and Technology sectors were relatively the strongest in the last 30 days. And they all have gained much more than the S&P 500 index in the same period. So that part of our ten long and short stock picks is meant to outperform in the coming days if the broad stock market acts similarly as it did before.

We hope you enjoyed reading the above free analysis, and we encourage you to read today’s Stock Pick Update – this analysis’ full version. There, we include the stock market sector analysis for the past month and remaining long and short stock picks for the next week. There’s no risk in subscribing right away, because there’s a 30-day money back guarantee for all our products, so we encourage you to subscribe today.

Thank you.

Paul Rejczak
Stock Trading Strategist
Sunshine Profits – Effective Investments through Diligence and Care

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Stock Pick Update: May 13 – May 19, 2020

The broad stock market has extended its short-term consolidation in the last five trading days (May 6 – May 12). On March 23, the S&P 500 index sold off to new medium-term low of 2,191.86. It was a stunning 35.4% below February 19 record high of 3,393.52. The corona virus and economic slowdown fears have erased more than a third of the broad stock market value. Then we saw huge come-back rally, as the index got back above 2,900 mark. Recently it has been fluctuating following the mentioned rally. There is no clear short-term direction.

The S&P 500 index has lost 0.45% since last Wednesday’s open. In the same period of time our five long and five short stock picks have gained 1.78%. So stock picks were relatively stronger than the broad stock market. Our long stock picks have lost 0.60% and short stock picks have resulted in a gain of 4.16%. The overall results remain relatively better than the S&P 500 index over last weeks.

If stocks were in a prolonged downtrend, being able to profit anyway, would be extremely valuable. Of course, it’s not the point of our Stock Pick Updates to forecast where the general stock market is likely to move, but rather to provide you with stocks that are likely to generate profits regardless of what the S&P does.

This means that our overall stock-picking performance can be summarized on the chart below. The assumptions are: starting with $100k, no leverage used. The data before Dec 24, 2019 comes from our internal tests and data after that can be verified by individual Stock Pick Updates posted on our website.

Below we include statistics and the details of our three recent updates:

  • May 12, 2020
    Long Picks (May 6 open – May 12 close % change): SLB (+5.17%), WYNN (-2.24%), MLM (-7.68%), MKC (+4.97%), GE (-3.22%)
    Short Picks (May 6 open – May 12 close % change): SYY (-3.33%), CAT (-4.81%), XEL (-7.15%), COG (-6.68%), AMZN (+1.18%)

    Average long result: -0.60%, average short result: +4.16%
    Total profit (average): +1.78%

  • May 5, 2020
    Long Picks (Apr 29 open – May 5 close % change): MPC (+4.50%), GILD (-5.75%), LIN (-3.19%), GE (-7.19%), HIG (-13.29%)
    Short Picks (Apr 29 open – May 5 close % change): UPS (-3.53%), SPGI (-2.59%), SO (-6.06%), COG (-1.16%), AMGN (-1.06%)

    Average long result: -4.98%, average short result: +2.88%
    Total profit (average): -1.05%

  • Apr 28, 2020
    Long Picks (Apr 22 open – Apr 28 close % change): SLB (+4.46%), EXPE (+14.94%), LH (+10.36%), COTY (-0.51%), PNC (+4.52%)
    Short Picks (Apr 22 open – Apr 28 close % change): WMT (-1.54%), NDAQ (+2.50%), VZ (+0.73%), COG (-3.79%), EBAY (+2.44%)

    Average long result: +5.17%, average short result: +0.18%
    Total profit (average): +2.68%

Let’s check which stocks could magnify S&P’s gains in case it rallies, and which stocks would be likely to decline the most if S&P plunges. Here are our stock picks for the Wednesday, May 13 – Tuesday, May 19 period.

We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (May 13) and sold or bought back on the closing of the next Tuesday’s trading session (May 19).

We will provide stock trading ideas based on our in-depth technical and fundamental analysis, but since the main point of this publication is to provide the top 5 long and top 5 short candidates (our opinion, not an investment advice) for this week, we will focus solely on the technicals. The latter are simply more useful in case of short-term trades.

First, we will take a look at the recent performance by sector. It may show us which sector is likely to perform best in the near future and which sector is likely to lag. Then, we will select our buy and sell stock picks.

There are eleven stock market sectors: Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Technology, Communications Services, Utilities and Real Estate. They are further divided into industries, but we will just stick with these main sectors of the stock market.

We will analyze them and their relative performance by looking at the Select Sector SPDR ETF’s.

Based on the above, we decided to choose our stock picks for the next week. We will choose our top 3 long and top 3 short candidates using trend-following approach, and top 2 long and top 2 short candidates using contrarian approach:

Trend-following approach:

  • buys: 1 x Energy, 1 x Technology, 1 x Communication Services
  • sells: 1 x Real Estate, 1 x Financials, 1 x Utilities

Contrarian approach (betting against the recent trend):

  • buys: 1 x Real Estate, 1 x Financials
  • sells: 1 x Energy, 1 x Technology

Trend-following approach

Top 3 Buy Candidates

SLB Schlumberger Ltd. – Energy

  • Stock still above its month-long upward trend line
  • The resistance level of $19
  • Initial upside profit target level of $22-24

CSCO Cisco Systems, Inc. – Technology

  • Stock broke above the resistance level of $43
  • Potential uptrend resuming following breaking above bull flag pattern
  • Upside profit target level of $45

NWSA News Corp. – Communication Services

  • The market broke above medium-term downward trend line
  • The resistance level of $12 (upside profit target level)
  • The support level of $10.00-10.25

Summing up, the above trend-following long stock picks are just a part of our whole Stock Pick Update. The Energy, Technology and Communication Services sectors were relatively the strongest in the last 30 days. And they all have gained more than the S&P 500 index in the same period. So that part of our ten long and short stock picks is meant to outperform in the coming days if the broad stock market acts similarly as it did before.

We hope you enjoyed reading the above free analysis, and we encourage you to read today’s Stock Pick Update – this analysis’ full version. There, we include the stock market sector analysis for the past month and remaining long and short stock picks for the next week. There’s no risk in subscribing right away, because there’s a 30-day money back guarantee for all our products, so we encourage you to subscribe today.

Check more of our free articles on our website – just drop by and have a look. We encourage you to sign up for our daily newsletter, too – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to our premium daily Gold & Silver Trading Alerts. Sign up for the free newsletter today!

Thank you.

Paul Rejczak
Stock Trading Strategist
Sunshine Profits – Effective Investments through Diligence and Care

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Apple Underwhelms as Share Price Rises, But It is September

The Trend is (always) King

September is always an interesting month for APPLE shareholders as the company traditionally announces new products and more recently, services to be launched and available for the important Q4 Christmas sales. This year was no different. Apple shares have moved with this year’s technology pack with highs posted following this week’s event over $223 and lows during August of $192, as the 50-day moving average proved an important support level.

September 10th was the launch event this year with upgrades announced for a raft of products from the iPhone (11), iPads and MacBook through to the Air Pods and Apple Watch (5). However, there were no new products announced. Simply upgrades to the existing lineup. However, what buoyed investors was something not normally announced at these September events, price cuts. There were reductions for the iPhone 11 range, heavy discounts for the Apple Watch (3) and the big surprise, APPLE TV+ at $4.99 a month, half the price many analysts were expecting and new Arcade game subscription service which will also be priced at just $4.99 per month and include a free one-month trial.

Hardware design and functionality have always been at the core of what Apple does and the big move in recent years has been away from this dominance of hardware (even though the iPhone still accounts for over 60% of revenues) to invest significantly in services. The initial move was a partnership in 2015 with IBM and Cisco to try to break in the corporate market; this has been followed by Apple Pay and more recently the long awaited upgrade for Apple TV and this week Apple Arcade.

Apple TV+ is scheduled for release November 1, and initially it was only to be in the USA but will now be available to 100 countries at an extremely competitive $4.99 per month. Apple is entering a very crowded video-streaming marketplace, currently dominated by Netflix, but including Amazon and Disney. Apple Services is a growing revenue stream within the technology giant and TV+ marks its latest attempt to diversify its dependence from the ubiquitous iPhone. The aggressive pricing structuring, undercutting its competitors, is a break from traditional Apple pricing models.

The US-China trade war hangs over all US consumer products and companies but Apple seems to have the ability to keep both Washington and Beijing on side.

The market clearly liked what disappointed the tech community this week as the shares rallied significantly following the launch. Apple stock trades up 41.7% year to date, 11.53% just this month and 6.88% this week. Apple’s market capitalization is now back over $1 trillion.

However, September being the final month of the third quarter it is traditionally the weakest performer of the entire year. Over the last twenty-one years, the USA30, USA100 and USA500 have all recorded average losses for September, with gains in the first half evaporating in the second half and the final week in particular. The rise this week for Apple shares is a typical post launch event rally. The major Wall Street banks have price targets for the stock ranging from Nomura at $175 to Morgan Stanley at $247.

Apple reports Q4 earnings for the end of September on October 29 and current expectations are for revenues to top $62.55 billion and EPS to top $2.80.

Stuart Cowell, Head Market Analyst at HotForex

(read our HotForex Review)

Cisco Systems, Inc. (NASDAQ: CSCO) Releases Its Q3 Earnings But Its Stock Turn Bearish

The company revealed its Q3 earnings at 66 cents per share which were higher than the analyst estimates by just one penny. The revenue reported for the quarter was $12.46 billion, marking a 4 percent rise compared to the revenue figure reported in Q3 of the previous year. The actual figure just barely managed to top the revenue estimate of $12.42 billion.

Cisco’s stock has so far managed to surge by more than 14 percent year-to-date and just a week ago, it managed to reach a new high of more than 17 years. During the announcement, the company stated that it was optimistic about future growth but unfortunately, Cisco’s stock took a dive by roughly 4 percent on Thursday following the announcement of the quarterly performance results. It turns out investors were expecting better performance, and thus the slight decline in the performance of the stock.

Despite the slight slump, the Cisco reported that it has a positive outlook about the demand for its products and services. More than half of the company’s revenue is generated through hardware sales. The firm has reported sales growth in just two quarters in the past nine quarters.

Cisco CEO Chuck Robbins has been working towards making sure that it expands its revenue sources, especially so that it stops depending heavily on its hardware business. Other than selling hardware, the company has been doubling down on software and network services. Meanwhile, it has also been investing in networking equipment to support its main business.

Robbins revealed that the strategy that Cisco revealed three years ago has been working and the firm is pleased that they are doing what they set out to do. The company’s new business model is expected to help achieve faster revenue growth once the company starts moving its traditional routing and switching customers to products that feature software subscriptions.

Cisco also announced that it expects its revenue for the fourth quarter to be between $0.68 and $0.70 per share. The revenue projection by the company is also in line with analysts revenue estimate of $0.68 per share for Q4. The firm expects Q4 revenue to rise by 4 percent to 6 percent. This means revenue is expected somewhere around the $12.7 billion figure.

Robbins stated that Cisco has been carefully executing its strategy and that its innovation pipeline is stronger than it has ever been. He also added that the company has been making significant strides towards subscriptions and more software. The Cisco CEO also stated that the firm is confident with its current position in the industry.

Meanwhile, there is speculation that the recent slump in Cisco’s stock might be the result of a narrow gross margin for its products. The company, however, maintains that its switch towards software should provide proper cushioning in the future. Network technology has been shifting towards software and Cisco is one of the adopters of the trend.