Federal Reserve chair nominee Janet Yellen indicated in a U.S. Senate hearing Thursday that she would continue to support the economy through stimulus measures. The Fed’s bond-buying program has helped spur the stock market by pumping it with extra cash. By Friday, the market was moving toward 16,000.
The stock market continues to defy gravity as the Dow Jones industrial average and the S&P 500 hit record-setting new highs. With corporate earnings season soon coming to a close, investors’ attention will turn to other issues.
Those issues continue to be the renewed budget and debt-ceiling battles in Washington. Given that stocks have not experienced anything larger than a 6 percent correction this year, the possibility of a more protracted decline exists. With the S&P 500 index up 23 percent this year, there has been concern that valuations are getting stretched.
The fact remains that expectations for a significant correction are widespread, but the trend is still bullish, even though many astute investors are neither buying nor selling.
Two Town Crier “50” stocks made news last week.
• Cisco Systems Inc. (CSCO; $21.50) tumbled early Thursday after analysts and investors reviewed Cisco’s earnings report, which missed Wall Street estimates. The company reported that it earned 37 cents per share on sales of $12.1 billion for the fiscal quarter that ended Oct. 26. Analysts had expected 41 cents per share on $12.36 billion.
Management blamed a number of factors, including the government shutdown and expenses associated with recent layoffs, while CEO John Chambers said in a conference call with analysts that the company received $600 million to $700 million fewer orders than anticipated. The impact on the federal business was approximately $50 million.
In other news, Cisco agreed to pay up to $863 million for the remaining stake of Insieme Networks, which makes data-center technology. Management also increased its share-repurchase program by $15 billion, which equates to roughly 12 percent of the outstanding stock.
The San Jose-based firm is the worldwide leader in networking that transforms how people connect, communicate and collaborate.
“While our revenue growth was below our expectation, we remain confident in our long-term goal to be the No. 1 IT company in the world,” Chambers said.
Numerous analysts are dropping Cisco from their buy lists. While the downgrade is disappointing, Cisco’s valuation and yield keep it on the long-term buy list of some analysts. Deutsche Bank has downgraded Cisco from a buy to a hold.
Thirty-four brokers have projected a high target price of $32, with a low price of $16.
• Intel Corp (INTC; $24.66) last week acquired Kno Inc., an education software company that offers e-textbooks for interactive devices like computers and tablets. The move represents Intel’s expansion into mobile devices and provides good publicity.
Intel will introduce its pop-up stores, with the first launching in New York this week. The stores will remain open through the shopping season and close in late January.
Based in Santa Clara, Intel designs, manufacturers and sells integrated digital technology platforms worldwide. It offers microprocessors that process system data and control other devices in the system.
Intel’s latest report revealed revenue of $52.35 billion, with a gross profit of $33.15 billion, total cash of $19.22 billion and book value per share at $11.15.
Intel provides a 3.7 percent yield for share dividends. While there is concern that Intel’s growth is slowing along with PC sales, analysts expect profits to rise 12 percent annually over the next five years because the mobile market relies on its servers and chips. Nov. 4 was the ex-date for a dividend payment of $0.225.
The mean target price for Intel stock is $23.73, with a high of $30.
Clyde Noel is a Los Altos Hills resident and longtime investor in stocks.