Those that warned
As ever, the key thing with investing is to hold your nerve and see what looks interesting. The first stock to consider is Citrix Systems, Inc. (NASDAQ:CTXS), which reported a mixed set of results. On one hand, its growing application delivery controller Netscaler demonstrated that it was probably growing market share against F5 Networks’ rival solution. One the other hand, Citrix Systems, Inc. (NASDAQ:CTXS)’s core virtualization solutions reported disappointing results as customers seemed to hesitate in making purchases, thanks to taking time to appraise the Q1 release of its XenMobile solution. The result was that its full year EPS guidance of $3.08-$3.11 fell short of analyst estimates of $3.14.
Frankly, I don’t think this is a big deal and, if enterprise technology spending bounces back, these estimates could prove conservative. Citrix Systems, Inc. (NASDAQ:CTXS) generates a lot of cash flow and its explanation for the earnings miss is plausible.
The next interesting stock is Allergan, Inc. (NYSE:AGN). Its mix of ophthalmic products and Botox gives it impressive defensive growth prospects. However, the stock has taken a near-term hit, thanks to some disappointing clinical trial developments. It is inevitable that some will sell out when these things happen, but investors need to consider that the stock looks good value even if they (conservatively) assume no contribution from DARPin (macular degeneration) or Bimatoprost (scalp hair loss) in future.
Analysts have it on mid-teens earnings growth for the next few years even without any contribution from these two programs. Given its near 5% current free cash flow yield, I think it can ‘do its earnings’ in returns from here. I bought some.
Those with momentum
I would argue that Sherwin-Williams Company (NYSE:SHW) and Colgate-Palmolive Company (NYSE:CL) are good examples of companies that have momentum behind them but are arguably on stretched evaluations right now.
The housing trade has been winning lately, and very few companies have done better than paint company Sherwin-Williams Company (NYSE:SHW) over the last year. Its correlation to the U.S. housing market is obvious and the company should do well over the next year. The problem is that everyone else seems to think so too and the stock’s evaluation of around 30x current earnings leaves little room for error. Even a cursory look at its evaluation…
SHW PE Ratio TTM data by YCharts
…suggests it’s a crowded trade.
As for Colgate-Palmolive Company (NYSE:CL), I think the market has been keen to bid up blue chip consumer staples and the company has certainly executed very well in recent years. My question is, can it continue? It is in a highly competitive industry and the likes of The Procter & Gamble Company (NYSE:PG) are responding in its core North American market.
Furthermore, Colgate is embarking on a four year growth and efficiency program intended to drive growth in emerging markets. In order to achieve this, it will need to continue to lead the field with innovation. This creates pressure and given that it’s on an evaluation of nearly 24x earnings with only single-digit earnings growth priced in, I don’t think it is good value yet.
There is always value
I’m not the biggest fan of value investing, but it is notable how well NetApp Inc. (NASDAQ:NTAP) performed in an otherwise difficult market for technology. Despite the nice rise, NetApp Inc. (NASDAQ:NTAP) still has around 35% of its market cap in net cash or financial instruments. Furthermore, it has generated around $1.1 billion in free cash flow (my calculations) over the last year. This equates to around 13% of its enterprise value as I write. Moreover, analysts have it on mid teens earnings growth for the next couple of years.
Quite clearly, the market is worried about something here and it is likely to be a combination of its Government and European exposure in the near to mid-term. As for the longer-term, the storage industry does face some existential questions over how data will be stored in a cloud computing age and will a smaller player like NetApp be a winner in such a world? I do not know the answers to these questions, but those with a stronger view may well be interested here.
The article What I Bought and Sold This Quarter originally appeared on Fool.com.
Lee Samaha has positions Citrix Systemas, Regal Beloit, NICE Systems, Fortinet, Ixia, Allergan and Robert Half International. Lee is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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