Much fuss has been made lately about high-flying tech stocks getting what’s coming to them, so to speak. One stock that took a substantial beating last week was F5 Networks (NASDAQ: FFIV), which dropped over 20% just one day after reporting earnings. Well, we all know the saying about babies and bathwater, right? So let me explain why I think this tech stock is actually presenting a screaming buying opportunity.
Thanks a Lot, Cisco
Stocks sometimes get caught up in industry news and their share prices go down because another company in their industry puts out a shaky forecast, and this is exactly what has happened with F5 Networks.
In November, Cisco Systems (NASDAQ: CSCO) put out a warning about slowing sales and profits in 2011, because of lower government spending and a challenging public sector environment. CSCO dropped 16% on that news, and the entire tech sector has been under that cloud since. I think this was a drastic overreaction for CSCO stock and for the entire industry.
Positive news from Intel Corp. (NASDAQ: INTC) and IBM (NYSE: IBM) this week benefited some large-cap tech stocks. More importantly, there’s a lot going well in the tech industry, and with new products and services on the horizon, I fully expect smart companies to more than make up for any decrease in government spending. Here are two ways:
Growth Through Acquisition
Technology stocks remain the spotlight for acquisitions as many tech companies strive to acquire companies that have market share in rapidly growing mobile devices. The recession put a lot of cash in company coffers and made a number of companies attractive takeover targets. Merger mania has been under way for several months, and the next round of buyouts will help draw interest and buyers into the industry.
Upgrade Technology
In the wake of the recent Consumer Electronics Show in Las Vegas, the mobile boom is about to hit “warp speed” as 4G is about to be introduced by more and more carriers besides Sprint Nextel (NYSE: S), like
AT&T (NYSE: T) and Verizon Communications (NYSE: VZ). 4G is literally 10 times faster than 3G, and Apple (NASDAQ: AAPL) and virtually all mobile device makers will be introducing 4G phones and other mobile devices to take advantage of the fact that high-speed Internet will finally be in the “air.” I don’t think any of these companies are good buys right now, as they will likely undercut each other as a 4G fee war breaks out.
Where the early money will likely be made is from the companies that build the infrastructure used to speed up 4G networks even further. Fiber optic lines are now being run to cell phone towers, and networks speeds are being boosted, which is great news for one tech stock on my list of 5 Screaming Blue Chip Buys …
Top Tech Stock to Buy
As I mentioned above, F5 Networks (NASDAQ: FFIV) is a screaming buy right now. The company reported earnings last week, and the result caused one of the biggest buying opportunities I’ve seen in a long time. Let’s look at the numbers:
The company reported earnings of 88 cents per share on revenue of $269 million. Analysts were expecting earnings of just 83 cents per share, so the company posted a 6% earnings surprise. However, F5 Networks failed to meet analysts’ revenue estimates of $271 million. So, its sales were up 41% versus expectations of 41.4%, and its earnings were up 90% versus expectations of 59.6%. Forward expectations were also lower than analysts were expecting, but if you can believe it, shares dropped 22% in after-hours trading because of the 0.4% sales miss.
When earnings are up 90% versus expectations of just 60% and the stock drops 22%, you bet it’s a buying opportunity. The sell-off has been way overdone, and I’m confident that many of those investors that pulled out will be kicking themselves soon enough.
This is a strong company in the growing field of cloud computing, and I rate the stock a screaming buy at current prices.
The lesson here is that when the reaction to the news is overdone, you have to take action and jump in when others are jumping out. This is a great company that gets an A in my Portfolio Grader system and should do well in just about any portfolio in 2011.
