Portfolio as of 7/28/2012

I have been expanding my foot print slowly but steadily. Portfolio as of 7/16/2012.
Cash = 30%

STX = 3% (Might add more depending on OCZ acquisition and today’s results). Why Did I buy?

EMC = 4% (Expect it to reach $29.5) . Reasons of purchase.

AAPL = 4% (Set more buy @ $569)

WDC = 6% (Expect it to reach $49.5) Why Did I buy?

QCOM=5% (Expect it to reach $69, if it stays over $59 for few more days) Why Did I buy?

APA=6% (Expect it to reach $119) Reasons

HAL =5% (Expect it to reach $40) Reasons

UA=3% (Set additional buys @ $54.9) Reasons of purchase.

SCSS=2% (Set additional buys at $25.9) Reasons of purchase.

SWKS=4% (Will add more at $25.9) Reasons of purchase.

EQIX=5% Reasons of purchase.

ALLT=4%

ALXN=6% Reasons

FFIV =3% (In Red) Reasons

F=5% (In Red)

TLT=5%

Four Growth Stories – SWKS, SWI, EQIX and SCSS

SWKS

Skyworks designs and manufactures several types of chips that enable wireless capabilities in cell phones and tablets. The company’s circuits are used in the devices of Apple, HTC and Samsung. Long known as a Power Amplifier (PAs) manufacturer, the company now offers the full range of analog, radio-frequency (i.e., RF), and power management circuits between the handset transceiver and antenna. It has recently added power management circuits to its portfolio.

SWKS reported solid fiscal third-quarter earnings and gave investors a bright fourth-quarter outlook.

Mar-11 75% 33%
jun-11 40% 25%
Sep-11 33% 30%
dec-11 -10% 20%
Mar-12 -33% 13%
Jun-12 60% 10%

SWI

SolarWinds has been on a tear for the last year and a half; the company’s second-quarter sales increased by 40% year over year to $64 million–the fifth straight quarter that SolarWinds’ year-over-year sales growth has accelerated–and beat management’s first-quarter guidance of $59.0 million-$60.2 million. SolarWinds’ performance is particularly impressive because the company is focused on growing its operations in a tough European market.

Break out buyers – $48 was break out point, but in this market just initiate a 50% position.

SWI eps Change Sales Change
Mar-11 31% 25%
Jun-11 28% 29%
Sep-11 49% 31%
Dec-11 21% 34%
Mar-12 40% 40%
Jun-12 50% 40%

EQIX

Equinix is the largest network-neutral provider of data centers in the world. Equinix’s customers have the ability to plug into a host of network providers to speed up connections to content partners, financial exchanges, ad servers, and the like. As Internet traffic grows as a result of cloud computing, video streaming, and continued enterprise outsourcing of data centers, managing bandwidth and network connections becomes more complex.

This company serves 4000 clients and routes almost 90% of world’s internet traffic.

Only concern I have is the slowing growth.

Mar-11 50% 85%
Jun-11 1400% 33%
Sep-11 -13% 30%
Dec-11 30% 28%
Mar-12 40% 27%
Jun-12 15% 18%

Market generally doesn’t like slowing growth specially for high multiples company.

SCSS

I have owned this company in the first quarter of the year and again started a position last week. No, I don’t have a crystal ball, I bought it after the earnings. The company makes sleep number mattress and has been on a roll for over last 6 quarters.

I have buy orders in place at $25.5.

  • Sales were up 27% YoY.
  • Same store sales were up 25% YoY, unchanged from the 25% for the same quarter last year.
  • The company was able to achieve an EPS of $0.3. This was 11% higher than the Street’s estimate of $0.27.
  • The number of stores is being increased from 381 last year ending December 2011, to the 408-412 range at present.
SCSS eps Change Sales Change
Mar-11 114% 22%
Jun-11 82% 16%
Sep-11 63% 25%
Dec-11 85% 27%
Mar-12 33% 40%
Jun-12 51% 27%

It’s no secret that AAPL …..

AAPL

Earning is out and AAPL sees another quarter of double-digit growth. But ……

  1.  Apple shipped approximately 26 million iPhone units during the June quarter. Analysts were expecting a little more than 28 million units shipped for the period.
  2. Revenue rose 23% to $35 billion, which also fell below analysts’ estimates of $37 Billion.
  3. The iPhone and iPad maker reported fiscal third-quarter net income of $8.8 billion, or $9.32 a share, up from $7.31 billion, or $7.79 a share, a year earlier. But this missed the estimates as well. The analysts were expecting $10.37.

Finally the almighty AAPL missed the estimates and the shares tanked. But please do not compare apple Inc. with other tech growth stories because AAPL still sports a P/E of 13 compared to 184 of Amazon Inc and 50 of VMW.

The question is where do we re-enter apple so that Iphone 5 bonanza is not missed.

  • I see two entry points – $555 and $520. So I suggest that you split your $$$$ into two parts and then invest.
  • I personally split my money into 3 parts – Now, $555 and $520.

Lastly the domino effect of AAPL miss will be felt by – SWKS, CRUS, QCOM, OVTI and TQNT. Did I miss anything?

Earnings – UA, EMC, VMW and BIDU

VMW

VMW, VM Ware, reported second-quarter results and in sum, the end-market demand for VMware’s solutions appear s strong aside understandable weakness in Europe.

  • Total revenue was $1.12 billion, up 22% on strong growth in maintenance revenue. The company has seen double-digit year-over-year percentage revenue growth for the past five quarters.
  • Net income for the computer software fell to $191.7 million (44 cents per share) vs. $220.2 million (51 cents per share) a year earlier. This is a decline of 12.9% from the year-earlier quarter. Last quarter’s profit decrease ends a four-quarter streak of profit increases.
  • VMware’s operating margin fell 140 basis points year over year.
  • There was a marked deceleration in annual license revenue growth to 11% this quarter, down from the 31% averaged during all of 2011. VMware expects typical seasonality will drop this growth rate even lower during the third quarter, before a strong rebound in the fourth quarter, with full-year license revenue growth between 11% and 15%.
  • The great news is the VMware’s announcement that it acquired Nicira, a start-up focused on software defined networking. At more than $1.2 billion Nicira represents an aggressive acquisition for VMware. Nicira is a player in network virtualization, analogous to what VMware has done for server virtualization. This follows the trend of network related acquisitions – DynamicOps, Zimba & Spring – that the company has embarked upon in recent past. Cisco is down on the news.

UA

Under Armour Inc reported better-than-expected earnings and raised its full-year sales forecast.

  • Second-quarter earnings rose to $7 million, or 6 cents per share, from $6 million, or 6 cents per share, a year earlier. Analysts on average had expected earnings of 5 cents on revenue of $358 million.
  • The revenue rose 27 percent to $369 million.
  • Under Armour also raised its 2012 operating income outlook to $205 million-$207 million.
  • The apparel and footwear maker, raised its full-year revenue forecast to $1.80-$1.82 billion from $1.78-$1.80 billion.
  • Inventory growth trailed revenue growth for the first time in eight quarters. Inventory at quarter end increased 22 percent to $381 million.
  • However, gross margin for the quarter fell to 45.9 percent from 46.3 percent reflecting lower apparel and accessories product margins in North America.

The UA numbers are exciting considering the soft landing that NIKE had projected. The orders for shoes are up and its apparel section is going great guns. Another great take away is that the revenue growth has exceeded the inventory growth, which had been bother few analysts for last few quarters.

EMC

I have been eyeing EMC for three reasons –

  1. EMC is a storage behemoth, and with data from social media showing no signs of slowdown, I expect that the demand of storage will not reduce in foreseeable future.
  2. The company owns 80% of VMWare which has seen double digit growth for last 5 quarters.
  3. Lastly, the phenomenal revenue growth of Mellanox Technologies confirms the uptick in storage demand. Mellanox Technologies creates fast connectors for storage devices.

Back to EMC –

  • EMC reiterated its previous full-year profit forecast of $1.70 per share, 3 cents below analysts’ average forecast. It repeated its revenue outlook of $22 billion, compared with an average estimate of $22.10 billion.
  • It said it expected free cash flow of $4.9 billion this year and it expects to buy back $700 million of its shares.
  • Profit, excluding one-time items, was 39 cents per share, below the average analyst forecast of 40 cents, according to Thomson Reuters I/B/E/S. Revenue rose 10 percent to $5.31 billion, beating the average forecast of $5.29 billion.

But the CEO, Joe Tucci, warned that on the macro front, pretty much everywhere in the world, they are seeing more caution and more scrutiny before any decisions to procure any IT product or service is made.

 

BIDU

BIDU, the darling of 2009 rally is trying to make a comeback.

  • The company posted a 70 percent increase in quarterly profit as net income was up at $436 million ($1.24 per share), on revenue of $858.8 million.
  • Revenue increased nearly 60 percent over its previous year quarter.
  • Analysts had expected the company to report earnings of $1.12 per share on revenue of $850.78 million.
  • Baidu forecast third-quarter sales will grow as much as 54 percent to 6.41 billion yuan. That compares with a 6.39 billion- yuan average of analysts’ estimates.

Earnings Blitz

Let’s start with the hot shot of the evening.

MLNX

Mellanox Technologies Ltd., the Israeli maker of technology used to transfer data, reported second-quarter earnings that exceeded analyst estimates as revenue surpassed $100 million for the first time. The stock jumped from $66 after hours to $95. Kudos to MLNX owners!

The Yokneam Elit, Israel-based company reported adjusted earnings per share of 99 cents, more than the 73.5-cent mean estimate of 11 analysts. The adapter maker, which advanced 6.7 percent today, posted quarterly sales of $133.5 million, a 111 percent increase over the same period last year.

It would be interesting to see the domino of this stock on another Israeli networking company ALLT.

SWKS

SWKS beat analysts’ estimates, though it forecast this quarter’s results slightly below consensus.

Revenue in the three months ended in June rose 9%, year over year, to $389 million, yielding EPS of 45 cents. Analysts on average had been modeling $382.2 million and 44 cents a share. For the current quarter, the company sees revenue in a range of $415 million to $420 million, and EPS in a range of 50 cents to 51 cents. That is slightly below the consensus of $418.6 million and 51 cents a share.

Skyworks stock is up $2.46, or 9%, at $29.05 in late trading. This is of interest once it crosses $29.5 and will be of more interest once the $30 level is breached.

SCSS

Select Comfort, known for its Sleep Number line of adjustable-firmness mattresses, has been increasing its store count and ramping up promotions to gain share from rivals.

The company, which has beaten earnings estimates for more than three years, said same-store sales, or sales at stores open at least a year, rose 25 percent. Now compare this with TPX

Select Comfort’s second-quarter income rose to $17 million, or 30 cents per share, from $11.3 million, or 20 cents per share, a year earlier. Sales jumped 27 percent to $205.2 million. Analysts on average had expected earnings of 27 cents a share on revenue of $198.3 million.

Even though I had suggested to short it at $24, which the stock never reached, I think that $25 is a good entry point. There is lot of support for the stock at $25 and if market continues to move north, this stock will reach atleast $30.

QCOM

Qualcomm’s forecasts for sales and profit this quarter missed analysts’ predictions. Fiscal fourth-quarter profit will be 62 cents to 68 cents a share on sales of $4.45 billion to $4.85 billion, San Diego-based Qualcomm said in a statement yesterday. Analysts were projecting profit of 76 cents a share and sales of $4.89 billion.

But the share is up almost 6% and at one time it was down by almost 5%. Don’t ask, don’t tell!

FFIV

Revenue in the three months ended in June rose 21.3%, year over year, and 3.8%, quarter-to-quarter, to $352.6 million, yielding EPS of $1.14. Analysts on average had been expecting $352.9 million and $1.14 per share.

For the current quarter, the company sees revenue in a range of $360 million to $370 million, and EPS of $1.16 to $1.19, citing that “cautious spending environment in the current global economy.” That is below consensus of $384 million and $1.24 per share.

It’s not doing too bad, but I expect it to at least revisit $89.

IBM

The Dow industrials component raised its full-year operating-earnings outlook to “at least $15.10” a share. Analysts currently expect per-share earnings of $15.05. Adjusted operating profit at IBM for the second quarter was $3.51 a share, and revenue was $25.8 billion, down from $26.7 billion a year ago. Analysts were expecting $3.43 a share on revenue of $26.3 billion for the most recent period. Result – it’s up 3%.

EBAY

The company’s second-quarter adjusted earnings of 55 cents a share — a penny a share better than the consensus estimate at FactSet. Revenue rose to $3.4 billion from $2.8 billion a year ago, ahead of Wall Street’s forecast of $3.36 billion in sales. On the basis of my experience, EBAY can easily run up to $49, if the market is favorable.

AGU

AGU said that it expects 2nd quarter earnings of $5.5 compared to estimate of $4.84. This is an awesome beat of almost 20%. This is interesting because stock is still cheap after a 20% run up.

Bernanke does it again!

There is just too much to write. So I will split this post into two – Bernanke and Non-Bernanke (vis-a-vis the earnings).

After being down 82 points in the early going the Dow reversed course and closed 78 points higher on Tuesday. Wow! Then the Nasdaq surged 1.1% as the technology sector led the market today.

The reversal was due to Fed Bernanke’s testimony this morning that the Fed is willing to do what it takes if the economy and labor markets do not improve.  He expects historically low rates to remain in place at least until the end of 2014 and most importantly he convinced the participants that the policymakers at the central bank seem to be preparing for additional moves to spur the economy in the weeks or months ahead.

This low interest rate environment should help stem any serious correction in the market averages.

So, where does yesterday’s trading action leave us now? First, I don’t think that this is a short squeeze anymore. Second, yesterday qualified as a decent follow through day from Friday’s key reversal which is a positive development.

Moreover, the basing action in some stocks and the sector rotation is almost clear now. One last thing to notice is that the junta seems to have realized that the tech and oil & gas stocks have been beaten to death. See below –

In fact we see rise or less “severe” damage to stocks even after the poor guidance.

  1. To exemplify, look at the the turn around in STX after it pre-announced a revenue miss by 0.5 Billion dollars (seriously!) or even QCOM which reported fiscal Q3 revenue and earnings per share a little light of consensus, and a Q4 view below analysts’ estimates.
  2. And of course an earnings beat is amply getting rewarded. e.g. MLNX – up 43% after hours, SCSS – up 17% after hours and SWKS – up 10% after hours.

So step in but be cautious.

Food for thought –

  • FDA approves Vivus’s diet pill (ABC)
  • Over 70% of earnings beating estimates (REU)

 

 

 

Short SCSS and long EMC but with a grain of salt.

Why Grain of Salt – Market turns around at a flip of coin, so be ware. Moreover we have earnings for both stocks coming up in next few days and earnings can be detrimental;)

First let’s look at SCSS –

Even though the fundamentals look strong, so did the fundamentals of TPX before it went from 85 to 25. It’s not about sleep number or Temparapedic (can’t even spell it). This stock has bumper resistance till it crosses 25.5, so set a stop at 25.7.

12 Hours after the post – “what a miss”

Now let’s look at EMC. –

This is a company that is in midst of social media revolution. It owns VMW and is leader in Cloud. You can’t discount it’s role in data storage.

So in short if you can buy now and double at 20.5 with stop at 19.1 then you are looking at atleast 7:1 profit to loss ratio.


24 Hour after the post – Entered at $22.9