At first glance, the ho-hum returns from the tech-laden Nasdaq these past couple of months may not make your list of things to be thankful for this holiday season. The Nasdaq was down about 1% in October, and November's even worse, declining 2% so far this month. So, if you're thinking, "I'll stick to turkey, stuffing, and altogether too much pumpkin pie, thank you very much," it's understandable. It would also be a darn shame.
In spite of a tough few months, the Nasdaq is still up 12% year to date. Economic conditions are improving lately, as evidenced by recent housing numbers, consumer confidence, and even unemployment (once the effect of Hurricane Sandy is removed from the equation). Throw all that into the investment mixing bowl this Thanksgiving, and what's left? A tech industry that's on sale, and we haven't even made it to Black Friday yet!
The first of two tech bargains
When NVIDIA (NVDA 1.01%) stepped up to the plate to report earnings on Nov. 8, shareholders and analysts alike were expecting the worst -- and for legitimate reasons. NVIDIA CEO Jen-Hsen Huang's strategic shift from supplying processors for GPUs, PC graphics, and the like, to a full-on commitment to mobile computing, was huge.
NVIDIA tied its horse to longtime partner Microsoft (MSFT 0.52%) and its Surface tablet, running the new Windows 8 OS. And with Microsoft CEO Steve Ballmer's notoriously hush-hush attitude toward releasing sales results, estimating the impact on NVIDIA's Q3 earnings was tough. But Microsoft wasn't NVIDIA's only ace in the hole; it also supplied product for Google's (GOOG 0.63%) Nexus tablet. Nice move on Huang's part, as Google announced it was tracking sales of about 1 million Nexus units over the past month.
How'd it go? Not only did NVIDIA beat expectations, its $1.2 billion set revenue records, earnings rose to $0.33 a share on a GAAP basis, and with solid cash flow, NVIDIA actually added to its ridiculously solid balance sheet. Now, if we can just get Huang into passing some of that on to shareholders in the form of a dividend... oh, wait -- he did!
Now here's the part to be thankful for: NVIDIA had the nerve to suggest Q4 would be relatively flat compared to last year. After an initial rush on NVIDIA stock, driving the share price up about 10%, investors opted to focus on Huang's earnings guidance. The result? A sell-off that's left NVIDIA as one of the cheapest in its sector, with an almost unlimited upside in the exploding mobile market. Thank you!
Now, some dessert
NVIDIA was a tasty holiday entree, but there's always room for pie. Another recent earnings surprise left investors with a sweet investment opportunity in the tech sector. Leading up to Cisco's (CSCO +1.06%) Nov. 13 earnings call, the concern was whether it could meet expectations of $11.8 billion in revenue. The notion that $11.8 billion in revenue would have been a 6% jump compared to the year-ago period didn't seem to matter; missing it was a no-no.
Many analysts and investors felt Cisco's expense management initiatives would help bottom-line earnings, but hitting top-line expectations? Not likely. The naysayers were right: Cisco didn't meet expectations -- it beat them silly. Revenue was just short of $12.9 billion, margins improved, and the $0.39 a share in earnings was an 18% increase compared to fiscal Q1 of 2012.
Now, with Cisco up about 10% since pre-earnings release numbers, you may ask, "How sweet can it be?" Even after the run-up, Cisco trades at half Motorola Solutions' (MSI 1.02%) 23 times trailing earnings, and Juniper Networks isn't even in the same stratosphere, value-wise. More impressively, Cisco's returns on assets, equity, and investment -- key measures of management efficiencies -- put Motorola and Juniper to shame. Margins? Again, it's Cisco, hands down.
The recent trend in the tech sector, flat to slightly down these past few months, couldn't be better for value-hungry investors. These two alternatives in particular, NVIDIA and Cisco, are worthy if you're in need of growth and income. With dividend yields of 2.6% and 3% (respectively), NVIDIA and Cisco are poised for a great 2013.
