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Tech stocks are having the best year ever!
We’ve seen Apple Inc. (AAPL:NASDAQ) run up gains as high as 69% on iPhone speculation and sales, as well as great earnings based on continuing iPod sales.
We’ve seen International Business Machines (IBM:NYSE), another tech heavyweight, surge 4% in value (a lot for a more than $100 per share stock) a few weeks ago based on increasing sales of global services and software, to the tune of $2.26 billion, or $1.55 per share. It’s jumped 22% since the beginning of 2007!
(As an aside, we’re up 41% on IBM in our Diligent Investor portfolio.)
And yesterday, we saw success in the way of Cisco Systems Inc. (CSCO:NASDAQ).
The tech company, which has only jumped 8.16% for the calendar year, hit a six-year high of $32.25 on extremely strong earnings. Much of the surge in the stock came from increasing its forecast over the long term.
The fourth-quarter earnings for CSCO showed earnings of $1.93 billion, or 31 cents per share compared with earnings of only $1.54 billion during the same three-month period in 2006. That’s a jump in one year of 25%.
Analysts expected earnings of 35 cents per share… and got 36 cents per share.
The reason the 6.7% increase in the stock price yesterday was so huge is that CSCO is often known for very conservative forecast language, and the fact that it stated that high demand for network equipment hardware, video conferencing systems and cable TV boxes would push earnings to higher levels attracted investors in swarms. On average, CSCO has grown its revenue by 15% every year for the past three years.
Its new long-term target is growth of 12% to 17% annual revenue increases, revised up from its original target of 10% to 15%.
According to Marketwatch, 191.7 million shares changed hands on CSCO on Wednesday, a 337% increase over its normal volume of 43.9 million shares.
CSCO has managed to finally surpass the lows from the 2000 tech bust, giving it ample ground to grow both as a Web 2.0 tech company, but also as a stock.
CSCO is also a current holding in Diligent Investor’s portfolio. We’re now up a whopping 58% on the holding since May 2006!
And “they” said tech was dead… or that blue-chip stocks didn’t have room to grow!
Bear Sterns has already upgraded Cisco to “outperform” from “peer perform,” almost immediately following the earnings announcement. CSCO is still technically low-priced at almost $32 per share, with a low P/E ratio of 28.44.
If you’re looking for something cheaper, inspect some of CSCO’s partners.
For example, EMC Corporation (EMC:NYSE) is only $18 per share and looks like it’s about to test its 50-day Moving Average. I’d watch it for a few weeks to make sure it pops back up, but it could offer a great side-play on CSCO’s forward-looking statements.
EMC is a strategic partner with Cisco works with networked storage systems for small and medium-sized businesses. CSCO already mentioned that network equipment would be in high demand over at least the next few years.
EMC’s fundamentals are all positive, including a healthy 21.40% quarterly revenue growth and a 10.85% profit margin.
Funny enough, another one of Cisco’s huge partners, Salesforce.com (CRM:NYSE), has risen 20% in the last couple of days partly based on great potential from CSCO.
Salesforce.com is a provider of software applications that offer what’s called “customer relationship management” to businesses worldwide. On top of CSCO’s great earnings and long-term forecasts, CRM announced a few days ago that it added more than 500 new customers since February of this year, testament that their innovative, easy-to-deploy software is causing a tidal wave across industries.
CRM has a hefty price tag of $45 per share right now and is extremely overvalued with a huge P/E of over 3,700! But its only other public competitor is Oracle Corp. (ORCL:NASDAQ), which looks about to take a dip on the ol’ daily stock chart!
I’ll continue to be on the lookout for some great tech stocks to add to your portfolio. I definitely believe that investor sentiment is starting to embrace technology stocks again (finally!), which is why I’m also looking at innovative new phases of Web 2.0 like Zigbee automation, femtocell wireless and other cellular technologies spawned from the new Apple iPhone.
More on tech in the coming weeks…
Ann
Tech Investing: Patching Together the Wireless Quilt of America
8/31/2007
Investing in Technology: New iPod Brings Fresh Buying Opportunity on Apple
8/30/2007
Chinese Stocks: Hard Commodity Outlooks and Hong Kong Trading Boosts Chalco
8/28/2007