Market Opportunities for the Value Investor

Recently, a couple of people asked my opinion on the market and where I think the opportunities are so I decided to dedicate a post to it.

I wanted to start off by thanking the Cisco investor's who have stuck with us through the last 6 quarters. As most of you know given our customer base, product lines, market cap, global positioning, and pulse in the market, Cisco has a tendency to read and feel market transitions 2-4 quarters before our competitors. As John said, I'm not sure if it's a blessing or burden but it does mean that the market uses our performance as a leading indicator for sector and industry health. We saw the financial crisis in 2001 before our competitors, again in 2008, and finally most recently a couple of quarters ago.

We posted earnings yesterday of $11.2B on $0.40EPS, exceeding analyst expectations for the first time in 6 quarters and provided steady guidance for Q1 in the 1-4% range. The market reacted and Cisco shares are up 17%, leading the way in a much needed market rally today:
http://www.marketwatch.com/story/street-sees-feistier-cisco-shares-jump-2011-08-11


You can also find a transcript to our earnings call below:
http://seekingalpha.com/article/286531-cisco-systems-ceo-discusses-q4-2011-results-earnings-call-transcript?part=qanda

The recent downgrade from the S&P, uncertainty in the job markets, stalemate in government, instability in the housing markets, and numerous other factors have contracted investors' expectations and misaligned them with fortune 500 balance sheet strong companies.

To put it simply: The market has created opportunities to buy strong companies cheap.

I'm a value investor, mostly because I don't have the time to put in the required diligence, nor do I want to pay taxes and broker fees on short term positions. Therefore, where I see opportunity I believe in putting your money long behind companies with:
• Strong balance sheets
• Good management teams
• Track records of success and ability to evolve
• Products and R&D activity that migrate along the development curve in anticipation of future consumption trends
• Externality plays off the above as suppliers, channel partners, distributors, etc... where the common money is less diluted
• Holistic economic hedges/ futures in commodities

Furthermore, I like to put my money behind what I know and that's Tech. Here are a few interesting plays from my perspective in the market right now:

Intel - they just dedicated $300M into an R&D incubator dedicated to developing ultra books designed to host their new line of stacked mobile processors. I think they're undervalued given their market share in the semiconductor industry and have an amazing management team. I'd also look for big announcements from them in mobile security.

Look for strength in markets that reduce travel costs, especially in the public sector (e.g.): Collaboration and Video.

Other than Cisco, look at:
Citrix- a little pricey at 5x revenue and 24 P/E but has a strong balance sheet and is a major player in this space. I'd expect them to increase orders in the public sector but would wait to get in below $55/ Share.

Mobility/ SP Infrastructure:
We see service providers ramping orders in mobility infrastructure to keep up with mobile data consumption growth and the evolution of applications. I'd expect more routing / switching / mobile security orders from service providers going into fy12. Keep your eyes out for movement around service providers / channel partners/ disty's in this sector.


B of A: The situation has been pretty exciting at B of A. The smart money is getting in and at $7 / share and I can't blame them. Look for them to dip further before you get in but keep it on your radar. I don't like playing financials but this is an interesting case.

Anyway, this is just my two cents. I don’t claim to be a trader or expert by any means.
As usual I’d love to hear your ideas.

The SVTB

Christmas in the cloud

It took my parents several hours to write, format, and distribute our Christmas letter this year. After getting into a long discussion with them about more efficient ways to distribute our Christmas letter, I introduced them to box.net, one of many free cloud computing applications available on the web. I uploaded our Christmas letter into the cloud and shared the cloud location using my social media channels so that all of my friends and family could immediately have access to our Christmas letter without having to store the huge file in their inbox, getting bounce backs from outdated email addresses, and running into formatting issues.

Wishing all of your friends and family a Merry Christmas is as easy as clicking the link that I've provided below:
http://www.box.net/shared/oqkxyzjve6

Embrace the power of the cloud and have more time to spend with your family this Holiday season.

Merry X-Mas and Happy Holidays,

Karl Laughton
P.S. You can now subscribe to my blog via email so that you'll receive an email notification every time I submit a new blog post, just put your email into the gadget on the right hand side of the page!

Generation Y - Implications for the workforce of the future

I'd like to welcome you all to my opening blog. Thank you for taking the time to hear my thoughts. Open forums of this nature make it easy to brainstorm on an enterprise-wide level, and exemplify the power of web 2.0 technologies.

Advances in mobile video, conferencing, internet, and 2.0 applications (Facebook, Twitter, etc...) are changing the way the workforce interacts with each other. These changes are part of the next generation of the internet and hold invaluable potential for how the workforce of the future will become more flexible, technology forward, and collaborative.

The problem: The management of today is mostly built on Generation X members who have yet to embrace the technologies their employees (Generation Y) grew up on. This is creating a communication gap between management and employees, producing an efficiency loss that stems from the opportunity cost of Not leveraging 2.0, video, or mobile communication channels.

Running late for a meeting? Shoot a text to your team.

Giving a quarterly readout? Turn on that web camera.

Want to help build a professional network within your team? Get on LinkedIn.

I'm not saying that everyone is not using video, 2.0, etc... Don't get me wrong, I'm simply saying that there are so many collaboration vehicles evolving as the next gen internet rolls out that can be used to shorten the communication gaps existing in siloed operational process architectures, that companies should take advantage of them.

Shortening communication gaps between management and employee cross functionally will supplement new operational models of boards and councils, integrate the traditional management style of Generation X with the next gen communication habits of Gen Y, and allow organizations to become more progressive on the whole.