Saturday, August 14, 2010

Buying Tech

One after another, the whole sectors are getting crushed on the market. For a while, then they are coming back. We saw it with all European securities in May and June. Now the focus is on American tech. This is ridiculous. This sector is what America is about: enterprising spirit. It doesn't need TARP; best tech companies have full coffers of cash. It's not afraid of deflation: it's in its own deflationary environment since 1970s. It's not afraid of Chinese import: survived Japanese and Korean import threat in 1980s. Tech is positioned perfectly to survive.
That's why I was surprised by market reaction to Cisco (CSCO) earnings. Company beat on earnings, missed less that 1% on revenues and didn't predict any serious slowdown. Year-to-year growth is over 20%. Company has P/E of 18.09, forward P/E of 10.73 and PEG of 1.04. These are very impressive numbers. But I think that these numbers are too conservative. Demand for networking hardware is increasing, we have mobile internet infrastructure expanding now, Internet TV is coming soon, which also will require infrastructure upgrade. Besides, company has $6.85 cash per share. If you recalculate P/E, taking cash out of price, forward P/E comes to around 7.3. This is unbelievable!
That's why I bought Cisco on Thursday. And if price goes down more, I will buy more.
Cisco is not the only tech company trading too low. I'm looking for more tech to buy right now. So far, Broadcom (BRCM) and Xilinx (XLNX) are also on my screen. Honestly, even Apple
(AAPL) is way too low. I have my own reservations regarding Apple, but temptation might be too strong.
If you think that I'm taking my ideas from James Altucher: (CSCO and these 6 tech stocks will be higher a week from now), you are almost right. I agree with James on everything but HP. XLNX is his idea I am borrowing. I found other stocks using my own research. I don't like HPQ because of management problems. Even the greatest company can easily be killed by bad management.

Full disclosure: at the time of publication author had a long position in CSCO and no positions in other stocks mentioned. Positions can change any time.

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