Is Cisco CEO purposely more downbeat?
Chambers inserted a pessimist cyclical outlook into a secular growth story.
Maybe Cisco (CSCO) CEO John Chambers is a closet chartist? Maybe that's how you can explain Cisco's now-maddening multi-year inconsistency?
While we have the soup-to-nuts analysis of the quarter and its strengths and weaknesses -- many more strengths than weaknesses by the way -- all told concisely and succinctly in an Action Alerts PLUS bulletin, I have to tell you that looking at a two-year chart may be the best way to figure out what's going to happen to Cisco (the stock, not the company).Given that we trade and invest in stocks, not products (something I wish Chambers would figure out already), the chart's very telling. Every time the stock gaps up on good news, it's almost as if Chambers says, "you know what, we have to fill in that gap. We've got to have the stock retrace a great deal of that upward bolt to get it on a more sustainable growth path."
Chambers has become the master of the technical. He knows, for example, that business is really smoking in most places and that the share take is good and the U.S. is strong and that Europe is coming back. He knows that while China is slow, this isn't Joy Global (JOY) or Cummins (CMI). Heck, it's less than 5% of sales. It's more like Google (GOOG)! Japan's weak, for certain, but it is lapping some huge numbers. So what does Chambers dwell on? The weak macro environment, even as sales were much better than the macro environment and will be better than that. In other words, he talked his stock down and where she stops, well, oddly, the chart knows. That's because the pattern's been that when Chambers goes dark on us in the commentary he takes the stock down to slightly above where the last gap up started. That analysis, which is more consistent than anything else I have seen, says the stock goes to $21.85. Hey, I will be as precise in the chart work as he is with the region-by-region order growth.
OK, maybe I am being somewhat facetious about him being a chartist, but I am not at all being facetious about what is going on here. Cisco had a real good quarter and if the stock had been up, say, 12% and not 34% going into this quarter, I think it might be flat today or even, yes, slightly up because I think Chambers could have skewed the outlook more positively than he did last night.
Contrast, for the moment, Cisco with other stocks in the old-tech cohort: Oracle (ORCL) and Intel (INTC). These are all huge companies facing, in many ways, almost identical macro challenges. The big difference is that unlike Cisco, none of these companies has the wind at its back. Intel is all personal-computer based, still, and don't even have good mobile offerings. Oracle is the high-cost software producer -- at least to the client -- that is getting hurt by software-as-a-service cloud plays as well as a terrible decision to go big into hardware, which is still hurting them.
Cisco, on the other hand, is playing in the cloud, playing in mobile, playing in security, playing in bring-your-own-device storage and in what Chambers calls the "the Internet-of-everything space." I think that Intel is in secular decline because of its PC base, and Oracle is in secular decline because of the cloud.
Cisco, unquestionably, is in secular growth mode. What Chambers did on the call last night is insert a downbeat cyclical outlook into a secular growth story. Given how few big-cap secular growth stories there are, Cisco suffered from a secular-deprived funnel that put too much hot money into a company that still has more cyclicality than we like. Making matters worse, companies like Ciena (CIEN) and Finisar (FNSR) and Juniper (JNPR) didn't share the downbeat vision, making us wonder whether Cisco is losing share even as Chambers repeatedly told us it isn't.
So, he filled in the gap by highlighting the negatives and by doing so he knocked slightly more than a full multiple point off the stock. The multiple is now the same as all of those other stocks I just ran through, even as Cisco's in secular growth mode and they are all in secular decline.
That's why the stock has to be bought at $22-$23 and not sold. After this downbeat-outlook-inspired decline, the stock's too cheap vs. its cohorts. It is hard for me to imagine the stock going under those multiples.
Now, let's put it another way. Hewlett-Packard's (HPQ) the best-performing large-cap tech stock of the year, up a mammoth 90%. That's because it was supposed to be in steep and perhaps terminal secular decline. Then the company reported a couple of quarters that called its obituary into question. So it has had a remarkable run-up.
Cisco, on the other hand, is the one huge-cap company that we thought was not trapped by the PC, so the expectations were as high as they were low for HPQ.
But is there any doubt that Cisco at $22 is a better company to own for the long term than HPQ at $27?
I don't think so.
As far as I am concerned, what we have here is simply Chambers talking down a story to a more realistic level from where the stock blasted off to last time when he had his bright side on.
The dark side takes things down, but not through the secular decliners in terms of multiple and that's why the stock should be bought, not sold. After this decline it's cheaper and better than Oracle at $30 after its hideous disappointment going back to $33. I would sell that all over again. It's simply retracing some of the gain and getting ready for its next move.
If the chart tells us one thing, it's that Cisco shares will be dead money for a bit until we realize that it's too cheap vs. the cohort, but it will not trade back to $26 until the next quarter is announced because that's the one that follows the now-reduced expectations.
In a maddeningly inconsistent company with a maddeningly inconsistent darkside/lightside CEO, this is the only pattern worth concerning yourself with. It's the only pattern that can make you money with Cisco and it says buy today, don't sell, but be prepared again to buy Friday and Monday, too, before the stock settles at a level that's just too darned cheap and starts its move all over again at a higher level than before it gapped (but not much more than that).
If you just recall that Chambers is a technician in technology's clothing, you will make the right move in Thursday's action.
Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long CSCO.
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Maybe if I had been a little late to jump on the bandwagon, a few days ago and then yesterday we could have saved a few bucks on some buys....
I was feeling a little smug.....Until this morning !
Little guys like us have much more trouble getting ahead of the curve, then those scumbags.
Don't really know much about Chambers and haven't held CSCO for over 10 years..
But what I do know, is I do not like RED banners nor RED ink.
looks like EVERYone sold TODAY according to whatever Cramer has said the past few days?
The time to have been cautious was yesterday...CGT.
Time to go golf and forget about the Markets for a few hours.
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