MorningWord 2/12/15: Damned if You Do, Damned if You Don’t

by Dan February 12, 2015 9:36 am • Commentary

This morning there are some tech stocks moving after reporting results, I wanted to do a quick roundup.

BIDU: The stock is down 5.5% in the pre-market, after the company missed their Q4 on higher expenses. On Monday on Fast Money we were asked to offer a stock pick for a place to find growth, mine was the China internet search behemoth. From my post Tuesday (BIDU: 750 Million More Customers to Go):

My View into the Print:   The stock is cheap relative to expected growth, but there are obvious concerns about the health of the Chinese economy. Not to mention the fear of occasional government interference.  But if you are looking for a growth play, it is appears to be there and mildly under-appreciated.  The stock is at an interesting technical spot. If it holds current levels, I could see a quick move back to $240 on the slightest bit of good news.  On an inline report and guidance I suppose that’s not enough to break the downtrend the stock has been in since the Nov highs.  And a miss and guide down the stock would likely quickly test the uptrend  and what looks like psychological support at $200 with no support below until $180.

We’re not that interested in playing the event itself but there are reasons to be bullish in the name in the intermediate to longer term

Last night on Twitter I got a few questions about this pick, but I think that it is safe to say as some were suggesting that I was not pounding the table on the stock, merely laying out a thesis, and this is the sort of stock I’d rather buy when it comes my way as opposed to buying on upward momentum. One quarter of increased spending could be a buying opportunity if it doesn’t become a trend and if they get leverage on that spending. We will be looking at the stock today, and if it holds $200 in the next couple trading days we could enter a long.

CSCO:  The stock is trading at a new 52 week high in the pre-market, up 7.5%, on slightly better than expected fiscal Q2 results and forward guidance. I think it is safe to say that expectations were not particularly high given their exposure to Europe and emerging markets and the general strength of the strong dollar.  Near term the stock is approaching a massive long term breakout:

CSCO 15 yr chart from Bloomberg
CSCO 15 yr chart from Bloomberg

There is one thing in my mind that could make this stock, that trades below a market multiple breakout in a big way above $30, and that would be CEO John Chambers leaving (wrote about it in Dec – CSCO’s CEO Gots To Go).  I do not think you chase the stock here, the results were good, not fantastic, and the company faces serious headwinds abroad. But If the company was to continue to divest no core businesses, make some smart investments in innovative businesses, and have a management shakeup, this stock could have a sort of rally MSFT did in 2014 during new CEO Nadella’s honeymoon period.

FEYE: stock is up 7%, on a slight beat and inline guidance. Clear example of a sort secularly based sentiment shift. The signings of Sony and Anthem in the last couple months after high profile data breaches demonstrates the company’s ability to be in the ring for every major data breach. Hard to chase the stock here, but with a high short interest and no over head resistance this one could clearly party.  My view from yesterday’s preview (FEYE of the Beholder):

My View: an inline quarter and another guide down causes a re-test of the low $30s, and if much worse than expected, the stock will be in the high $20s again in the coming weeks.  That said a high quality beat and raise, stock is a coiled spring, and has NO overhead resistance to the high $40s

TSLA: looked like a bad quarter all around. Lots of excuses, and resiterated promises about the back half of the year. All of this as the company will likely need to raise lots of cash for the build out of their giga-factory. As I said yesterday on the technical set up:

In my opinion, the chart is a disaster, possibly setting up for an epic breakdown.  The next time it enters the $200/$180 support zone, it may take months to come out.

TSLA 2yr chart from Bloomberg
TSLA 2yr chart from Bloomberg

I stick by that, the stock is now very much a SHOW ME STORY. While I believe in Musk and his current product, and would like to make TSLA part of my speculative longer term portfolio, I am hard pressed to think, based on the recent execution, that I will not get a chance closer to $150 in the coming months.  The story is mildly broken, and the chart is very much so. But despite what will be no shortage of competition from the major automakers, the story is still very compelling when you consider some of the possibilities for their technology outside of cars.

All of these stocks I am positively disposed to, some are down this morning, and some are up. But I think it is important to note (a point that we make frequently when doing work on a story) that sometimes it makes sense to wait for a data download like earnings before establishing a position.  In today’s scenario if I made equal dollar amount purchases yesterday in the four stocks listed above I would be even on the opening, two stocks down 7% and two up 7%.