Two Picks from Cramer's Nov. 20 Lightining Round.
Dr. Osman is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Do-it-yourself investors can get some useful investing ideas just by watching CNBC's Mad Money. Jim Cramer, the host and former hedge fund manager, has one goal: to help stock traders make some “mad money.” He presents market insights and suggests investing opportunities in a unique style. During the “Lightning Round” he reviews several stocks picked by the viewers. While it only takes him a few seconds to make a call, we should take some time digging deeper into his rates. After all, as he says, we should never invest without doing our homework. Here, I review two stocks discussed on the Nov. 20 Lightning Round.
When a viewer mention Cisco Systems (NASDAQ: CSCO), Cramer immediately pushed a button and a bull appeared on the screen. Cramer clearly likes this stock, and I think he is probably right. When it comes to enterprise-class networking equipment, Cisco is the “go-to” provider. It holds a diverse product portfolio, including switches, routers, and access equipment for high quality data communication. The firm has also set foot in new markets, such as data center servers and video conferencing.
Even though 2011 was a challenging year characterized by restructuring efforts and aggressive competition, Cisco managed to improve its operating results. For the first quarter of fiscal year 2013, Cisco reported EPS of $0.48, up by 18% on a year-to-date basis, and revenue of $11.9 billion. Over the same period, sales increased by 6%.
I strongly believe that in the tech world innovation is the key to success. Cisco supports this notion by implementing a growth strategy that is guided by market transitions. In order to stay ahead of its peers and keep meeting market demands, Cisco is always seeking lucrative investments. Demand for network visualization capabilities is the main driver of the company's latest investment. Recently, Cisco announced its intend to acquire Meraki, Inc.
San Francisco-based Meraki serves as a leading wireless equipment vendor, which focuses on the SMB customer. Meraki offers cloud-based management access solutions to 18,000 mid-sized corporate customers. Cisco could parlay the Meraki deal into an effort to expand its cloud computing offerings to a broader customer base. At the same time, Meraki's expertise with Wi-Fi network and enterprise security could provide Cisco with a significant competitive advantage over its peers.
The company's major peer in the enterprise Wi-Fi market is Aruba Networks (NASDAQ: ARUN). Aruba is also targeting the midmarket through its Aruba Instant product line. With the Meraki deal, Cisco can battle Aruba on two fronts. Who is going to be the winner? The addition of Meraki's solutions differentiated by cloud-based management software, which lowers administrative costs, is certainly a game changer. Aruba's life is about to get tougher.
Over the last six months, Cisco has seen its stock return about 10%. At the moment, the stock is trading about 12% below its 52-week range of $20.97 with relatively desirable valuations. ROE figures stand much higher than the industry's same variable, making Cisco a comparably attractive investment. Based on analysts' average mean target price it has at least 17% upside potential.
Next on the list is Intel (NASDAQ: INTC). With a market cap of over $95, Intel is the most valuable chipmaker worldwide. Founded in 1968, the company develops and manufactures microprocessors and platform solutions for PCs. Cramer was bearish on this one, and I can understand why.
Intel is swimming in turbulent waters. Slow economic growth in China and declining demand in Europe and the U.S. have severely impacted global PC shipments. For the third quarter of 2012, Intel's PC Client Group revenue dropped by 8% year-over-year. As a result, the leading chipmaker is slowing down its production. Intel has failed to adjust to the market transition and has been slow to expand to the fast-growing mobile industry. The company is struggling with strong competition within the industry and seems to be losing the battle.
ARM Holdings (NASDAQ: ARMH) is leading the way in the smartphone business arena. It serves as a key technology component of popular devices, such as Apple's iPhone. In addition, ARM anticipates double digit market share for traditional and tablet computers in 2013. For PCs alone, Intel's rival expects to achieve market penetration of over 10% by 2015. Moreover, Intel is at the beginning of a six-month leadership transition. After serving the company for nearly forty years, CEO Paul Otellini is retiring earlier than expected. This certainly puts additional pressure at a time most crucial for the company.
Intel's year-to-date stock chart is the definition of a falling knife. Since the beginning of the year, the stock lost over 20% of its value. The latest closing price was about 22% below the SMA200 and about 11% below the SMA50. Over the past ten years, Intel has rewarded its shareholders with substantially growing dividends. However, I think that its short-term growth prospects are limited. Now might not be the right moment to place a bet on this stock.
ecofinstat owns shares of Intel. The Motley Fool owns shares of Intel. Motley Fool newsletter services recommend ARM Holdings and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!