Sell Advisory: Sell Cisco (CSCO) See details below.
U.S. stock market indexes dropped again yesterday, August 17, exactly one week after falling in reaction to some saber rattling between President Donald Trump and North Korean Premier Kim Jong-un. As expected, President Trump and Premier Kim have cooled off.
The latest crisis du jour included the negative reaction of investors to second quarter earnings reports. These reports were not bad, but good or bad, they led to some serious selling. On another front, President Trump can’t seem to stay away from trouble: One day after two panels of business leaders disbanded, the President abandoned plans to create an infrastructure panel. The CEOs leading the two groups, heads of some of the country’s largest companies, quit over Mr. Trump’s surprising reaction to a white supremacist rally in Charlottesville, Virginia.
The turmoil surrounding the White House is causing serious concern as to whether the President’s agenda could fail. He will need the backing of business leaders to push through legislation on infrastructure spending, health care reform and a tax overhaul.
Stock market action will likely moderate as investors, looking for bargains, will step in and buy stocks, although once-a-week tumbles could reappear on a regular basis. Hold conservative and defensive stocks to avoid large losses.
In this Weekly Update, I summarize the latest news for three companies. Max Buy and Min Sell Prices are the recent price targets appearing in the Cabot Enterprising Model Issue 277E, for which you received the link on August 10. I have included pertinent questions from subscribers with my responses. Results are for the quarter ended June 30 unless otherwise stated. Prices appearing after each stock symbol in this Update are the closing prices on Thursday, August 17, 2017.
Also, in this Update, I present two indexes which list companies featured in the Cabot Value Model or in the Cabot Enterprising Model during the most recent four months so you can quickly find my recent write-ups for stocks appearing in the models.
My schedule for the next five weeks will be:
Thursday, August 24, Wall Street’s Best Daily
Friday, August 25, Weekly Update
Thursday, August 31, Cabot Value Model issue 278V
Friday, September 1, Weekly Update
Thursday, September 7, Cabot Enterprising Model issue 278E
Friday, September 8, Weekly Update
Wed-Fri, September 13–15, Cabot Wealth Summit, Salem
Friday, September 15, No Weekly Update
Friday, September 22, Weekly Update
Company Reports
Cisco Systems (CSCO 31.04) disappointed investors again. Sales slipped 4% and EPS dipped 3% after sales declined 1% and EPS increased 5% in the prior quarter. Management provided a tepid outlook for the current quarter and next 12 months. Cisco’s transition from hardware to software and subscription products and services is a move in the right direction, but the change is taking too long.
In addition, the company is losing market share in switches, its primary product line, which produced 9% negative growth in the latest quarter. Sales and earnings growth will likely be less than 5% during the next 12 months, which is too slow for most investors.
I first recommended buying Cisco at 22.76 in my October 2013 Cabot Value Model using the Modern Value system. The stock has gained 36.4% during the past 46 months compared to a gain of 46.0% for the Standard & Poor’s 500 Index. Sell.
Home Depot (HD 149.67) exceeded expectations. Sales for the quarter ended July 30 climbed 6% and EPS advanced 14%, after increasing 5% and 16% in the prior quarter. Same-store sales rose an impressive 6.3%, as sales to professionals outpaced sales to do-it-yourself shoppers.
Management raised its sales and earnings forecast for the second time this year. HD management now expects sales to rise 5.3% and EPS to jump 13% for the year ending January 31, 2018 compared to prior guidance of 4.6% and 11%.
Tesla and General Electric will add rooftop solar farms to 50 Home Depot stores in New York, New Jersey, Connecticut, California and Washington. The move should cut the electricity demand for the stores by one third or more. Six of these stores will receive Tesla battery storage facilities. Hold.
VMware (VMW 95.77) reported excellent preliminary results for the quarter ended August 4. Sales climbed 12% and EPS jumped 21% after increasing 9% and 15% in the previous quarter. The company’s newest products and services in the cloud and cloud architecture business is generating strong sales from customers. Management raised its sales and earnings estimates for the next two quarters. The revised forecast calls for sales growth of 10% for the year ending February 2, 2018 and 15% EPS growth. Hold.
Index of Latest Summaries – Recommendations featured in recent issues.
