Yesterday's post critiquing Cisco's earnings may have resonated on the Street. CSCO opened up but then turned tail the rest of the day. Unlike Big Finance, at least CSCO makes products that help people and businesses, that work as advertised, and that have allowed the company to amass a large cash position without selling stock. Unfortunately, CSCO is big, is losing market share, promotes its stock too much, etc., so EBR is not in love with it as an investment, either; but at least it is not a fraud.
Re the whole bubble, there is a nice summary of free-market, Austrian economics thinking re where we have been and where the current President wants to take us. It's not groundbreaking research, but it's worth a read as a review of a coherent position to which EBR is sympathetic.
See "Beware of Obamanomics" (which is not partisan, despite its title; it skewers many).
TrimTabs continues to report almost nil insider buying. If stocks were cheap at Dow 8400, there should be lots of insider buying. EBR likes this trend not at all.
Courtesy of Zero Hedge, the Fed has released statistical report G.19, which demonstrates steady declines this year in the quantity of consumer credit. People simply don't want/can't afford debt. In this regard the people are wiser than their overlords.
Also in Zero Hedge, "The Reverse Engineering of Greenspan Continues" demonstrates some extraordinary overpricing of mortgage-backed debt vs. Treasuries, as well as providing an interesting long term look at that relationship.
The combination of heavily bearish sentiment on Treasuries, falling consumer credit, overcapacity in goods and services everywhere the eye can see, the Big Lie that Big Finance is healthy (thank you, PPIP!), and the undervaluation of Treasuries vs. mortgage-backed securities would appear to make long Treasuries an interesting speculation. Anywhere from 10-30 year yields are interesting, as they are at or within support ranging from the Bear, Stearns fiasco (the 10 year) to the prior cycle (the 30 year).
Nonetheless, despite an uninspiring chart, of Treasuries, the S&P 500, and gold, guess which asset that Econblog Review continually speaks well of is up on the year. Only gold, which is also outperforming cash. Gold was up in price 8 years in a row before 2009. Will it end with a blowoff upside peak, a la 1979 or the NASDAQ in 1999? Treasuries may be a good trade, but gold can be forever.
Copyright (C) Long Lake LLC 2009
Showing posts with label Cisco Systems. Show all posts
Showing posts with label Cisco Systems. Show all posts
Thursday, May 7, 2009
Wednesday, May 6, 2009
Cisco Reports a Miserable Quarter: Stock Therefore Expected to Soar
Because my sister has twice worked for Cisco Systems ("CSCO") and twice quit, this former growth darling has elicited a special interest. CSCO reported earnings today. The best way to see the trend of business is to click on this link, which in the modern fashion, the company (a master of the Net) makes it difficult for interested parties to find.
A little context: Year on year, the global economy has grown in nominal terms. As a leading company in a secular growth industry, and allegedly one with best of breed products and marketing, one would therefore expect CSCO to have at least grown sales equal to the nominal growth in global GDP.
CSCO in fact reported sales down 17% yoy and earnings down 21%, whether GAAP or its preferred non-GAAP metric.
Orders from emerging countries were down over 30% yoy. India, which is not even in recession, had orders down about 40%.
In about the last 7 years, CSCO has spent $56 B on share repurchases. Average cost: $20.43 per share. The stock closed at $19.61, up strongly on the year. Dividends to shareholders have never been paid. The CEO and top management have been very well paid.
The $56 B spent/wasted on share repurchases is 50% of the current market value. If instead of repurchasing stock, which of course allowed optionees the best chance of cashing out at a profit, CSCO had paid dividends and repurchased no stock, loyal shareholders would have had a 50% return of their capital. Yet despite drastically underperforming the global economy recently, CSCO persists in treating itself as a dynamic growth company, rather than the lumbering behemoth (sales $8.2 B this quarter) it has become.
As with GE, Wall Street loves Cisco, and for the same reason. These companies do lots of deals, so they make Wall Street rich. Please click on the Wikipedia link to see the number of acquisitions CSCO has made over the years.
9-10 years ago, when Cisco stuffed its employees full of its wildly overvalued stock, I advised my sister to sell all she could. I first advised this when it was at $40 and dropping from its peak level, then at $18-22 as it was collapsing. My advice was that you never know what the shape of the curve of overvalued growth companies grown to be large companies would be, but history teaches (I said then) that in retrospect, valuation matters and everything tends toward fair value eventually.
Now, Cisco Systems is a tired company that has made John Chambers and other insiders fabulously wealthy. Investment bankers and stockbrokers have generated large fees year after year brokering deals and stock trades, respectively.
Even though it is a "public" company, CSCO exists for the benefit of the above groups. Why anyone else would want to be an owner of a company that is losing share of the global economy and that has treated its legal owners shabbily is a question that perhaps your financial adviser can answer.
I can however guarantee you that if CSCO were private, it would have been paying out large dividends to its owners year after year. The board and management would have howled with laughter if anyone had proposed buying in stock from its owners to "create shareholder value".
Coyright (C) Long Lake LLC 2009
A little context: Year on year, the global economy has grown in nominal terms. As a leading company in a secular growth industry, and allegedly one with best of breed products and marketing, one would therefore expect CSCO to have at least grown sales equal to the nominal growth in global GDP.
CSCO in fact reported sales down 17% yoy and earnings down 21%, whether GAAP or its preferred non-GAAP metric.
Orders from emerging countries were down over 30% yoy. India, which is not even in recession, had orders down about 40%.
In about the last 7 years, CSCO has spent $56 B on share repurchases. Average cost: $20.43 per share. The stock closed at $19.61, up strongly on the year. Dividends to shareholders have never been paid. The CEO and top management have been very well paid.
The $56 B spent/wasted on share repurchases is 50% of the current market value. If instead of repurchasing stock, which of course allowed optionees the best chance of cashing out at a profit, CSCO had paid dividends and repurchased no stock, loyal shareholders would have had a 50% return of their capital. Yet despite drastically underperforming the global economy recently, CSCO persists in treating itself as a dynamic growth company, rather than the lumbering behemoth (sales $8.2 B this quarter) it has become.
As with GE, Wall Street loves Cisco, and for the same reason. These companies do lots of deals, so they make Wall Street rich. Please click on the Wikipedia link to see the number of acquisitions CSCO has made over the years.
9-10 years ago, when Cisco stuffed its employees full of its wildly overvalued stock, I advised my sister to sell all she could. I first advised this when it was at $40 and dropping from its peak level, then at $18-22 as it was collapsing. My advice was that you never know what the shape of the curve of overvalued growth companies grown to be large companies would be, but history teaches (I said then) that in retrospect, valuation matters and everything tends toward fair value eventually.
Now, Cisco Systems is a tired company that has made John Chambers and other insiders fabulously wealthy. Investment bankers and stockbrokers have generated large fees year after year brokering deals and stock trades, respectively.
Even though it is a "public" company, CSCO exists for the benefit of the above groups. Why anyone else would want to be an owner of a company that is losing share of the global economy and that has treated its legal owners shabbily is a question that perhaps your financial adviser can answer.
I can however guarantee you that if CSCO were private, it would have been paying out large dividends to its owners year after year. The board and management would have howled with laughter if anyone had proposed buying in stock from its owners to "create shareholder value".
Coyright (C) Long Lake LLC 2009
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