- Published on Wednesday, 30 October 2013 01:04
- Written by Clyde Noel
One reason for optimism regarding corporate growth is the recent strength of economically sensitive stocks like Tesla Motors Inc. (TSLA) and Facebook Inc. (FB), both local corporate entities reaching all-time highs.
On a national level, there is overall concern because of a lack of excitement from the Dow Industrials, which have yet to close above their Sept. 18 all-time high of 15,676.94. A move above that level would confirm a bullish trend for investors.
The latest disappointing September jobs report and falling consumer sentiment for the future may help explain this hesitancy. The University of Michigan’s October consumer confidence rating fell 2 percent to 73.2, the lowest reading since December 2012.
One of the main reasons for the decline was the first federal government shutdown in 17 years, which undermined Americans’ outlook on the economy.
Sliding consumer confidence could affect holiday spending and the stock market, as the recent Congressional deal is only a temporary fix. Our federal government could provide us with renewed fiscal debates by the year’s end and into 2014.
Town Crier stocks of interest:
• Microsoft Corp. ($35.53; MSFT) surprised the market last Thursday with its quarterly profit and revenue forecasts. Revenue rose 16 percent to $18.5 billion while analysts had expected $17.8 billion.
First quarter sales posted a 17 percent increase in profit to $5.2 billion or 62 cents per share, up from $4.5 billion or 53 cents per share in the year-ago quarter.
Many analysts trimmed profit margins after Chief Executive Steve Ballmer announced his retirement and the company acquired Nokia’s handset business while the core computer business was decreasing.
Microsoft broke out sales of its Surface tablets for the first time, which doubled from the previous quarter. Surface tablet sales increased to $400 million due to rising interest in the smaller, discounted Surface RT model.
Chief financial officer Amy Hood said, “We look forward to our second quarter where our enterprise business will be strong and we are set for a fantastic holiday season with Surface, Xbox One and a host of devices from our partners.”
Recent upgrade and downgrade history has Microsoft in a downgrade phase from a buy to a hold. Mean target price is $35 and high target is $42.
• Cisco Systems Inc. ($22.51; CSCO) shares have dropped 14 percent since the company posted July quarter results in August and this recent drop disappointed cautious investors. Its share price remains nearly 75 per cent below its all-time high.
Price/earnings ratio, at about 15, is lower than the S&P 500 rating at 18 and this concerns investors. Cisco sells great routers, but is running into competition from cheap routers.
Last week Cisco announced its next “vision for collaboration,” which focuses on a modern workspace that enables workers to work smarter and allows teams to instantly connect and communicate.
Cisco suffers from weak trends in profit estimates and share-price action and has recently been downgraded by numerous analysts. For example, MKM Partners LLC downgraded the stock from a buy to neutral Oct. 16. Other analysts consider Cisco a buy and a long-term buy. High target price is $32.
Clyde Noel is a Los Altos Hills resident and a longtime stock investor.