Sell Juniper, Buy Cisco, ARM and Citrix
So it would surprise many to learn that I have also been a closet admirer of one of its chief rivals, Juniper Networks
Instead, I think investors should be loading up on Cisco.
Sell Juniper, Buy Cisco
For Juniper, as great as its product portfolio can potentially be, its challenge will continue to be finding ways to grow and create the sort of momentum that inspires tech investors to believe. With increasing competition from the likes of Hewlett-Packard
In its first-quarter report, not only did the company show a drop in profits but it was the fifth consecutive quarter in which its gross margins declined. The company reported a profit of $16.27 million, or 3 cents per share, a decline of over 87% from the previous year.
So as much as I want to make a bullish case for the stock, this trend does not inspire enough confidence to warrant it. So what can investors expect this quarter?
The company said it expects revenue in the range of $1.03 billion to $1.06 billion and adjusted profit in the range of 15 cents per share to 17 cents per share. Analysts were expecting a profit of 20 cents per share on revenue of $1.05 billion. So it seems logical to expect that an earnings disappointment just might be in the works.
For years the prevailing debate among the networking companies has always centered on Juniper and Cisco, specifically which one is the best. Clearly, Cisco remains the leader as questions of Juniper's overall health remain an issue. Meanwhile, Cisco has been resurgent, demonstrating it has not forgotten how to execute and deserves to regain its status among the elite.
Buy ARM Holdings
Because of the dominance of Apple's
As a result, aside from Qualcomm
However, unlike its rivals rewarded from exposure to Apple devices, ARM has decided to play the role of the "sneaky diplomat" by also licensing its chip technology to the highly anticipated launch of Microsoft's
As impressed as I am with ARM's business model I am equally impressed that it is in a position to play both sides of the fence -- it stands to win regardless of which mobile device comes out on top. As the company is due to report its earnings on Wednesday just ahead of the close, I think it would be wise to add to an existing long-term position.
In its recent quarter ending in March, the company reported revenue of $209.4 million, representing an annual increase of 13%, well ahead of analysts' estimates of $201.2 million, while also beating estimates on earnings per share of 16 cents. Even more remarkable was the fact that its gross margins arrived at 94%, 30 basis points better than the prior-year quarter, while its operating margin soared 12.9%.
Ahead of the report, the company expects revenue of $211 million and EPS of 15 cents. With its track record of market-beating performances and another potential robust quarter from Apple, it is hard not to expect a beat on both the top and bottom lines. Astute investors should consider adding ARM shares at current levels as the stock should reach my fair market value of $27, a premium of 16% above its current price.
Desktop virtualization giant Citrix Systems
When looking at the company, one can clearly see Citrix operates a sound business in a growth industry and that it has an excellent management team steering the ship. The question for me has always been, does its business fundamentals support its current valuation?
When discussing companies within this sector including rivals VMware
However, if I were to make an exception and throw valuation concerns out of the window, Citrix would certainly qualify as one to buy.
However, when valuation is not the chief concern, it often takes a back seat to the fierce competition that exist within the space, not only from Cisco and F5 but the likes of Microsoft.
Be that as it may, Citrix continues to churn out one good quarter after the next and its upcoming report should maintain that trend.
In its most recent quarter, the company earned 59 cents per share, representing a stunning increase of 18% annually from its previous report of 50 cents, which topped analysts' estimates of 51 cents.
However, what made this even more impressive was that just prior to the report, the company had guided down to 49 cents to 51 cents. It then reported revenue of $589 million, or growth of 20% from the previous year.
The company's performance continues to demonstrate how corporations are depending more and more on Citrix' products and services. What is clear is that in terms of corporate IT, virtualization is here to stay and demand will only increase as companies strive to be more efficient as they battle for growth.
In that regard, it would be wise to continue adding shares of Citrix as part of an existing long-term position. With the stock trading comfortably at $80, there is 10% more upside available and investors should anticipate shares reaching $85 to $88 level by year's end.
At the time of publication, the author was long AAPL and held no position in any of the other stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.