Cisco Delivers 100% Profit as Sandisk Gets Hammered
Over the past few weeks, it’s become commonplace to see tech stocks sell off after beating earnings estimates. Watching Sandisk ($SNDK) get hammered at Thursday’s open continued that recent pattern.
Sandisk dropped by over 7% at the open, despite crushing earnings estimates by 12%. Revenue came in about 6% stronger than expected, but the company’s forward guidance was tepid.
Sandisk has been something of a poster child for the tech rally. The stock has gained 2,950% over the past 12 months, despite a 43% decline over the past six weeks.
Jeffries had an interesting take on Sandisk, maintaining its buy rating while cutting its price target nearly in half, from $3,000 to $1,750. Jeffries pointed to Sandisk’s soft guidance for the current quarter, but the stock’s price action has hinted at trouble since it peaked above $2,300 in June.
Citigroup also maintained its buy rating, while lowering its target price from $2,500 to $2,100.
Looking at Sandisk’s chart, the phrase “Elvis has left the building” comes to mind.
The Cisco Kid
This brings us to Cisco Systems ($CSCO), which is scheduled to report earnings after the August 12 close. Like Sandisk, Cisco reached an all-time high in June. Since then, shares of the networking giant have slid by 6.5%.
Cisco’s chart gives no indication that earnings or revenues will disappoint analysts, nor is it projecting bullish gains. The stock has been in consolidation mode for the past three months.
Would it be surprising if Cisco beats earnings and revenue estimates next week? No.
Would it come as a shock if the stock subsequently fell despite a seemingly solid report, as many tech names have done recently? Also no.
Entries and Exits
We first bought Cisco at the end of 2024, referring to the stock as a “backdoor AI play.” At the time, the shares were trading just below $60.
We closed one-third of that position in May at $118, as documented here. Since then, the stock has only gained about $4, as Cisco continues to consolidate and drift sideways.
On Thursday morning, we closed the remaining two-thirds of the position at $122. Our average exit price is about $120.50, for a gain of just over 100%.
Bottom Line
Cisco’s chart doesn’t look bad, but it just doesn’t look good enough. It’s fair to ask, does Cisco Systems have more upside or downside right now? It’s difficult to draw confidence from Cisco’s chart, and from the price action of some of its peers.
When it comes to tech earnings reports, there seems to be a growing sentiment to sell first, and ask questions later. By closing our Cisco trade now, we hope to avoid any potential post-earnings selloff.
At the time of publication, Ponsi had no positions in any securities mentioned.
