Friday, January 20, 2012

Tech Earnings Impact on Holdings

Thursday was a big day for earnings reports in the tech sector.  Below are some thoughts on the earnings reports:

Google (GOOG) - Ouch! Their earnings disappointed and the stock fell over 8%.  Very little good news for the portfolio here.  At least we had "only" bought half our target position prior to these earrings.   I'll have to review the earnings call further, but it appears as if search was down and they spent more than expected on the new businesses.   I guess taking a step back, that is what you want your management team to do.  Protect market share with lower pricing on the mature business and invest in the new.   (How's that for rationalizing!).  Looking to the future, I suspect this negative surprise will keep a lid on this stock for at least one (and probably more) earnings cycles.  If the stock retraces back over $600, I'll probably look to unload one of the lots, take a loss, and look to get back in at a lower price

IBM (IBM) - Ho hum, another solid quarter.   Up 4% today. Most importantly to me they reenforced their goal of $20/eps by 2015.   With a huge backlog of long-term business,  this goal seems very achievable.    Given those earnings, it is just a matter of playing "pin the multiple on the earnings".  At 12 times earnings that is $240 or a gain of 27% or 8% per year for the next three years.  Plus a nearly 2% dividend.  Not a home run, but potentially one of the highest probability 10% returns in the market.   If the market ever gets a little enthusiastic and gives it a 15 p/e....$300 here we come!  I continue to believe in this story. In full disclosure this is my largest individual equity holding.

HP(HPQ) - As discussed in yesterday's post HPQ traded in sympathy with IBM today (up 3.6%).  I'm not sure that coattail based enthusiasm will continue.   I still like covered calls against HPQ positions here.

INTEL (INTC ) - Intel keeps grinding forward, meeting lowered expectations, and went up 3%. I think the market is starting to agree with me that Intel's core capabilities make the story much more than just chips for consumer's pcs.   With Intel  trading over $26 today, p/e's are finally getting into double digits and closer to fair value. At $30 I would think it is more fairly valued.  That is "only" 15% from here, so it might be appropriate to take a little profit on this up move.  In that regard, the portfolio has one lot of Feb $25 covered calls in play that might result in one lot of stock being called away.

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