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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.
With the Federal Reserve finally deciding to scale back its bond-buying program on Wednesday, stocks recorded their best week in two months, as the S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES: ^DJI ) rose 2.4% and 3%, respectively. However, three technology stocks -- BlackBerry (NASDAQ: BBRY ) , Oracle (NYSE: TWTR ) and Red Hat (NYSE: RHT ) -- outperformed the broad market significantly on company-specific events.
BlackBerry shares are juiced
Shares of BlackBerry shot up 15.5% on Friday, even as the company announced a worst-ever $4.4 billion loss, driven in part by a $1.6 billion charge against inventory -- BlackBerry's new phones aren't selling. Even excluding this charge, adjusted earnings per share came in below Wall Street's expectations, and so did revenues.
Apparently, the first outline of a turnaround strategy from newly installed CEO John Chen was enough to cheer investors. The company will shift its inventory risk to Foxconn, with a five-year partnership to build consumer smartphones for Indonesia and other high-growth markets. That will enable BlackBerry to focus on the areas in which it has a competitive advantage, first among which is providing a secure enterprise platform for managing mobile devices.
Setting a strategy is an essential first step for any successful turnaround, but the rate at which BlackBerry's revenues are declining is alarming (-24% between its third and second fiscal quarters.) Chen told investors on Friday the goal is for the company to be "cash flow neutral" by the end of fiscal 2015, which is more than a year away. BlackBerry shares remain highly speculative; betting on them now requires a big leap of faith on what looks to me like a best-case scenario.
Oracle shoots for the cloud
And speaking of enterprise software, shares of Oracle gained 5.8% on Thursday to achieve a 52-week high, in the wake of the company's results for its fiscal second quarter. Following three consecutive quarterly "misses" with regard to revenue, investors were pleased to see revenues of $9.3 billion exceed Wall Street's $9.2 billion consensus estimate (the company also beat on the bottom line).
With a rise in bookings for Web-enabled software (or "cloud services") of 35%, Oracle also assuaged fears that it is losing ground to smaller, more nimble rivals such as salesforce.com that provide Web-based software solutions. On Friday, it drove that message home by announcing the acquisition of cloud-based marketing software provider Responsys (UNKNOWN: MKTG.DL ) for $1.5 billion.
Oracle has grossly underperformed the S&P 500 this year; the shares have gained just 10%. However, at just 12 times the next 12 months' earnings-per-share estimate, that underperformance could well reverse next year -- a couple of more quarters like the last one would certainly help put it on that path.
Like Oracle, another enterprise software provider, Red Hat, announced quarterly results that found favor with investors this week. Like Oracle, Red Hat beat Wall Street estimates for revenue and earnings-per-share; the shares rose 14.5% on Friday following the late Thursday earnings release. Unlike Oracle, however, Red Hat's shares are not valued at a discount to the S&P 500; in fact, its forward earnings multiple of 36 is three times Oracle's. Sure, Red Hat is much smaller with better growth prospects, but its multiple sets a high bar for achieving many happy returns in the new year.
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