Cisco Powers Up as Dow Races to Hundred-Point Gain

Hillshire Farms takes a tumble after the announcement of the company's intended acquisition of Pinnacle Foods

May 12, 2014 at 2:30PM
Daily Fool

Stocks have raced higher to start the new week, with the Dow Jones Industrial Average (DJINDICES:^DJI) jumping out of the starting gate at the bell and rising 110 points as of 2:30 p.m. EDT. Most blue-chip stocks on the index are in the green. Tech giant Cisco (NASDAQ:CSCO) has gained today as Wall Street waits on the company's earnings coming up later this week. Around the market, Hillshire Brands (NYSE:HSH) made big news with a fresh acquisition. Let's catch up on what you need to know.

Will China, Cisco turn things around?
Long before the Dow opened this morning, China got the market day rolling with a boost. The country's leadership is pushing forward with new market reforms aimed at boosting a Chinese economy that has fallen off from once-astronomical growth as of late. Among other things, Beijing hopes to bring back foreign investment that has fled from emerging markets recently, which has taken a toll on the world's second-largest economy. Though Chinese stocks jumped and gave confidence to international analysts and observers, there's still a lot of work to do to keep growth stable at the 7.5% annual rate that Beijing wants. If China can't keep its economy on pace, stocks will have a hard time pulling out of the doldrums that have plagued this market and its investors over the past year.

Cisco Logo

Cisco's stock has assisted the Dow's run today, gaining 0.7% so far. The networking company will report quarterly earnings on Wednesday, and all eyes are on whether the Cisco can turn things around. The company has struggled to boost its earnings and sales, and analysts expect a decline of 6.8% in revenue year over year for this quarter. What's been the biggest problem? Cisco's revenue from switching products fell 12% in its last quarter, and emerging markets have taken a big hit -- revenue from this segment fell off by 3% in its most recent quarter, with China in particular giving Cisco problems. The company only makes about 20% of its total sales from emerging markets, but if Cisco can't turn around this niche, its path to turning around revenue declines will look even harder in the quarters ahead.

Around the market, Hillshire Brands said it will buy Pinnacle Foods (NYSE:PF) for $4.3 billion. The news has sent Pinnacle's stock up nearly 14% on the day, but investors haven't been as pleased with Hillshire's stock which has fallen more than 5% so far. Hillshire will boost its annual revenue to roughly $6.6 billion with Pinnacle in the fold, and the buyer hoping it can make the most out of the acquisition's big brands, such as its Vlasic pickles and Duncan Hines baking products. The move should also help turn Hillshire into a formidable competitor in the frozen foods niche: According to the Chicago Tribune, the combined company will become the third-largest frozen-food seller in the U.S. For investors interested primarily in Hillshire's 1.9% dividend, however, that yield looks ripe for the picking over the long term.

Elsewhere, Big Biotech's Biogen Idec (NASDAQ:BIIB) has jumped 4.3% today despite a lack of big news from the health-care giant. Biogen's stock has lost more than 11% over the past three months, and with the company rallying behind new oral MS drug Tecfidera, today's jump looks like savvy investors buying in on a great company's dip. It's a smart move: Tecfidera racked up more than $500 million in sales during the first quarter, sustaining momentum from a big launch in 2013. The drug's on pace to emerge as a blockbuster this year, and if Tecfidera can keep up its success at home while expanding abroad, look for this therapy to emerge as Biogen's foundation for years to come.

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Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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