With Chinese equity markets closed last night and again tonight, let’s talk some US stocks.
GoPro (GPRO): Yesterday, shares of GPRO were down as much as 11% and closed down 5.5% on the day. The reason was weak forward guidance/commentary from component supplier Ambarella (AMBA). AMBA closed down 8.5%, after being down as much as 16.5% shortly after the open. Shares of GPRO have declined nearly 40% in the last month, and yesterday, having nearly made a new 52 week low, the stock is at an important technical level:
On CNBC’s Fast Money last night I said that GPRO shares were expensive (watch here). I’d like to clarify that statement. To be honest, the last time I looked closely at the stock was early June, when the stock was $60 (read here)/ It was expensive. Since then, the stock has declined and estimates have just started to come down as some analysts are questioning whether the seasonality of their products, missed launches and weakening demand due to competition will hit the stock. But if investors and analysts are being too pessimistic now, then the stock at 20x next year’s expected earnings growth of 15% and 2.3x expected sales (expected to grow 20% yoy) seems fairly reasonable. That is if you believe the company can deliver on the product front in drones, virtual reality and some sort media platform for their content. I don’t think they will nail their transition to a media company and I therefore believe that the $5.5 billion market cap (especially in this market environment) already incorporates most of that hope in what will be a very competitive, and soon to be commoditized wearable camera market.
Cisco (CSCO): In segment about cheap Dow stocks last night on on Fast Money I discussed CSCO. The stock is down about 12% since Aug 13th, reporting a good quarter with fairly decent forward guidance. The good quarter was i the face of heavy exposure to emerging markets and the strength of the U.S. dollar. The company has a new CEO, who has spent the last few months trying to reinvigorate a company whose stock has massively under-performed the S&P 500 since the lows in 2009 (up about 90% vs the SPX up nearly 200%). CSCO trades at about 10.5x fiscal 2016 expected earnings growth of 5%, pays a dividend that yields 3.27%, and has nearly half of their market cap in cash. The stock just broke-down below important one year technical support at $26, which should now serve as decent near term resistance:
While CSCO’s fiscal 2016 earnings and sales estimates are at risk if the current economic environment turns into a global recession, the company’s strong balance sheet and cash return should support the shares in the low $20s. I missed it on its quick drop last Monday towards $23, but the stock could become a great put sale candidate on the next move back to those levels.