Stocks fell big-time Friday, erasing three days of gains on the Dow Jones industrial average after Ukrainian forces engaged a Russian armored column on Ukrainian land. The Dow plummeted more than 100 points before noon.
In light of the geopolitical situation, the loss was only approximately 0.8 percent. In the first seven months of the year, we have seen numerous days when losses or gains totaled more than 100 points, so why worry? Remember, when the Dow drops 100 points, you will see more and larger headlines than when it rises the same amount.
Investment adviser Edward Jones reported that the stock market drops approximately 10 percent once a year and typically pulls back 5 percent three times a year. Translating that into points, a 5 percent decline would be approximately 800 points and a 10 percent decline would be a drop of 1,600 points.
Nobody knows whether the bulls or the bears are right, so don’t be discouraged by bears peddling gloom and doom. Corporate earnings and sales are growing, but stay alert for global conflicts and rising interest rates, and watch the averages for buying opportunities.
Two local firms made the news this week.
• Cisco Systems Inc. (CSCO; $24.64) shares dropped a few pennies after the recent quarterly earnings report, but they topped analysts’ forecasts. The company earned 55 cents per share, 2 cents higher than analysts predicted, and revenue came in at $12.4 billion, $260 million higher than expected.
Most of the attention came from another round of 6,000 job cuts, which represents approximately 8 percent of the company’s total workforce. The cuts are in addition to the 4,000 positions eliminated a year ago. Cisco took restructuring charges of $700 million.
Cisco’s sales have dropped because of the sluggish global economy and competition from other local companies like like Juniper Networks Inc. and Palo Alto Networks Inc.
Cisco sees growth in its data center and cloud-based services businesses, so the company is trimming its overall workforce and reinvesting in areas that show more promise.
Looking forward to fiscal year 2015, analysts have lowered their forecasts for Cisco’s earnings per share from $2.29 to $2.17, while revenues are now expected to total $49.3 billion, down from $49.6 billion.
Cisco stock may have disappointed some investors, but shares have risen along with the overall market and are up 12.3 percent in 2014.
• Tesla Motors Inc. (TSLA; $260.42) achieved its fourth consecutive record close Thursday after Deutsche Bank upgraded the stock from a hold to a buy. Tesla shares have gained 74 percent this year, and 37 percent over the past 12 months. The market valuation of the company now tops $32 billion.
Tesla CEO Elon Musk revealed that production capabilities at the NUMMI factory could produce Tesla automobiles at a rate of 100,000 per year. A Deutsche Bank report revealed that they see a clear path to 500,000 units of annual production this decade.
Credit Suisse analysts Thursday reviewed the fight between electric vehicles and international combustion engines, with Tesla’s Model S reigning superior. Because electric motors don’t have torque curves, the Model S can reach 60 mph in a little more than 4 seconds.
Credit Suisse deemed Tesla stock an outperform, with a $325 price target. Analysts said it would be difficult for traditional automakers to overcome Tesla innovation as long models can offer $1,400 to $2,500 per year in fuel savings to the consumer.
The mean target price for Tesla stock is $247.57, with a high of $325. The majority of analysts suggest a hold on the stock.
Clyde Noel is a Los Altos Hills resident and longtime investor in stocks. Disclosure: He owns stock in Cisco Systems Inc.