Ahead of Earnings, Cisco Stays Afloat in a Sinking Dow

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The markets are taking a hammering today, and the Dow Jones Industrial Average (DJINDICES: ^DJI  ) is right in the thick of things. As of 2:25 p.m. EDT the blue-chip index has fallen about 111 points, with most of its member stocks in the red. Cisco (NASDAQ: CSCO  ) has managed to resist the Dow's plunge as investors anticipate the company's earnings release later today. However, many of its fellow blue-chippers aren't having such a lucky day. Let's catch up with what you need to know.

Cisco powers up for earnings
Cisco's shares have hung flat for most of the day, but the real news will break after the closing bell, when the company will report its fourth-quarter earnings. Analysts are expecting a strong close-out for the company's fiscal year, estimating that revenue will rise by 6% and earnings will increase 8.5% year over year for the quarter.

By comparison, Cisco put up strong numbers in the third quarter when it reported back in May. The firm's switching products didn't sell as well as they had a year ago -- a troubling trend for the company's largest products division, where sales dropped 1.7% year over year. However, Cisco's focus on providing for data centers has paid off in a big way. Data center product sales picked up by 77% in the third quarter, and the segment's on pace to exceed the $1 billion mark in sales for the full year.

Keep an eye on Cisco's North American sales. The company made nearly 59% of its total sales from North America through the first nine months of the year, increasing its reliance on the continent for its revenue by 1.9% year over year. Meanwhile, Cisco's European, Middle Eastern, and African sales have lagged as Europe's economy has remained stuck in neutral. Total sales derived from the region fell to 25% of the company's overall revenue from 27% a year ago through the first nine months of the year, and it's likely that the trend will continue, considering Europe's ongoing economic troubles.

Cisco's having a stable day, but that can't be said for most of the Dow. Johnson & Johnson's (NYSE: JNJ  ) being hammered today despite little news on the stock. Shares of the diversified health giant are down about 2.4% to rank among the Dow's leading laggards.

Yet is today's drop any more than an inevitable pullback on a day when most stocks are down? J&J's shares have performed exceptionally well over the course of the year, gaining more than 31% year to date. While the company's medical-device division has seen hard times recently -- excluding its surging orthopedics division, the segment's sales growth has fallen flat -- J&J's pharmaceutical sales are flying as high as ever.

J&J's steady blockbuster immunology drug, Remicade, hasn't slowed down at all despite being one of the best-selling drugs on the market. The therapy pulled in 7.5% sales growth over the first six months of the year and is on pace to exceed $6 billion in sales for the company by the end of the fiscal year. Meanwhile, up-and-coming oncology stars Zytiga and Velcade are both on the way to becoming blockbusters by the end of the year, as each has posted more than $700 million in sales over the first half of 2013. For Zytiga, that success owes to revenue growth of more than 70% for the first half.

J&J might be down today, but don't count on hard times overall for this standout medical giant.

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  • Report this Comment On August 14, 2013, at 3:02 PM, EllenBrandtPhD wrote:

    I'm not a Cisco maven. But I think They Who Rule the Market want Cisco to succeed this earnings report, because it would confirm a turnaround in Europe and in Russia - which, no matter how much some pretend to hate it, is good foreshadowing for the BRICs.

    Also, Chambers scheduled for very early morning appearance on Bubblevision, which generally portends his having Bullish things to say.

    Could be wrong, but worth a small Bullish bet.

    In a general market wager: They could want to allow a major averages rally on Friday, because next week is Jackson Hole week, which tends to be very volatile. Kuroda speaks on Thursday, I believe, so that is Crux Day.

  • Report this Comment On August 15, 2013, at 11:37 AM, EllenBrandtPhD wrote:

    Well, that was a bad bet! Now the question becomes, is it dead money for just a few days, or dead money for longer? Jury is out.

    Of course, we all do know they are over-reacting pretty much everywhere today.

    But it's interesting in Market terms, because this is a pretty strong vote by "the Market" that September is still too early to give in to the Bond Vigilantes, and that they should probably dial the Taper Talk way back to December or early next year.

    There are a lot of things they can do over the next few days, i.e. a lot of excuses:

    "Geopolitics too dicey to take chances with the Market."

    "Predictions of above average storm season still intact, meaning WTI could stay elevated."

    "Congressional battles ahead in September."

    "Inflation still too tame."

    "US just not strong enough yet to serve as any kind of 'locomotive' for all those poorer countries teetering on the edge."

    "This is Goldilocks - so let's not spoil it."

    In a pure Market sense, I think they should start supporting the Oil and Materials sectors and promoting that rotation.

    And they should talk up a decent Back to School season to help Consumer Discretionary.

    They also - although of course, they never are sufficiently focused on what happens outside the US - should talk up the possibly VERY favorable elections in Norway and Australia - both pro-Business and pro-Growth, if polls are right - and the likely reelection of Angela Merkel, which is good for the Euro and Europe.

    Of course, the Strong Dollar Ninnies should just shut up again - but fat chance getting them to do it.

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Johnson and Johnso… CAPS Rating: *****