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Is Cisco Still A Bellwether For Tech?

Wednesday, 9 Feb 2011 | 5:11 PM ET

Is Cisco still a bellwether for growth? That’s what investors are starting to wonder after the technology giant again sent investors scrambling for the exits after their latest earnings report.

Cisco is considered one of the sector's prime bellwethers due to the breadth of its customer base which ranges from small U.S. businesses to foreign governments. Also, its last quarter ended in January rather than December like most of its peers, making its results a more up-to-date indicator of technology spending.

However, on Wednesday results from the company seemed to fly in the face of the conventional wisdom that the recovery had blossomed into an expansion.

Although Cisco results beat Street forecasts, profits fell 18% from a year earlier.

"As a company, we are going through a period of transition as we move aggressively in the market with our architectural strategy," John Chambers, Cisco's CEO, said in a prepared statement. "We have managed these market transitions many times, positioning Cisco and our customers for success."

The language of that statement troubles Fast trader Karen Finerman. “I want them to be where they’re going. I wouldn’t jump in here.”

After Hours Check: Cisco
CNBC's Jon Fortt has an update on Cisco earnings.

On a more positive note, and perhaps more important for those investors who use Cisco as an ‘economic tell,’ sales improved. The company generated sales of $10.4 billion in the quarter. This time last year, Cisco reported sales of $9.815 billion.

Joe Terranova just can’t get excited, even about these sales figures. “Sales of network switches should have soared given the economic uptick that we’ve seen,” he says.

Terranova also makes that point that, ”Cisco has the highest correlation of any large cap tech company to global GDP. The fact that Cisco was unable to deliver a good earnings report is problematic.”

By the numbers, Cisco earned 37 cents a share excluding special items in its fiscal second quarter, against 40 cents a share last year. The company's net profit for the quarter ending Jan. 29 fell to $1.5 billion from $1.9 billion.

Word on the Street
The Fast Money traders take a look at today's top business stories.

What should you make of it? How should you position now?

"I love cheap and the stock is cheap," says Karen Finerman. "But I wouldn't touch it until these issues shake out."

"If Cisco bounces down to $19.25, I'd take a look as a trade," says Guy Adami, "but Cisco is becoming old technology in the way that Microsoft has become old technology," he adds. "Long-term I think it’s a value trap. If you’re an investor the play is long rival Juniper on a pullback.”

Read More:
Cisco Sees Profit Slide but Tops Expectations

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AFTER HOURS ACTION: WHOLE FOODS

Shares of Whole Foods popped in extended trade after the company reported a quarterly profit that topped Wall Street's estimates due to accelerating sales at established stores. Also the grocer raised its full-year forecast.

Looking at the numbers the company posted net income available to common shareholders of $88.7 million, or 51 cents per share, for its fiscal first quarter, ended Jan. 16. That compared with $49.7 million, or 32 cents, a year earlier.

Analysts, on average, were looking for a profit of 46 cents, according to Thomson Reuters.

Sales rose 14 percent to $3 billion. Closely watched same-store sales rose 9.1 percent, versus 8.7 percent in the prior quarter.

How should you trade?

"I like the stock and the way it’s trading in the after market," says Jon Najarian. "I don’t think the stock would pop like this if the consumer was so strapped."

"In the wake of these earnings I’d look at Hain and TFM ," says Karen Finerman.



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Trader disclosure: On Feb 9, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Jon Najarian owns (CSCO) call spreads; Jon Najarian owns (WFMI) calls; Jon Najarian owns (ECA); Jon Najarian owns (JNPR), is short (JNPR) calls; Jon Najarian owns (GS), is short (GS) calls; Jon Najarian owns (IBM), is short (IBM) calls; Jon Najarian owns (AET), is short (AET) calls; Jon Najarian owns (RIMM), is short (RIMM) calls; Jon Najarian owns (AAPL), is short (AAPL) calls; Jon Najarian owns (X), is short (X) calls; Jon Najarian owns (SWY), is short (SWY) calls; Jon Najarian owns (RSH), is short (RSH) calls; Jon Najarian owns (M), is short (M) calls; Terranova owns (VRTS); Terranova owns (C); Terranova owns (UPL); Terranova owns (GM); Terranova owns (PEP); Terranova owns (LTD); Terranova owns (CVI); Terranova owns (SU); Terranova owns (CNQ); Terranova owns (POT) puts; Adami Owns (AGU); Adami Owns (C); Adami Owns (GS); Adami Owns (INTC); Adami Owns (MSFT); Adami Owns (NUE); Adami Owns (BTU); Adami's wife works for (MRK); Finerman's firm is short (MDY); Finerman's firm is short (SPY); Finerman's firm is short (IWM); Finerman's firm is short (IJR); Finerman's firm is long S&P puts; Finerman's firm is long Russell 2000 puts; Finerman owns (AAPL); Finerman's firm owns (AAPL); Finerman's firm owns (AVP) calls; Finerman owns (BAC); Finerman's firm owns (BAC) leaps; Finerman's firm owns (BBY); Finerman owns (C); Finerman's firm owns (FCX) puts; Finerman's firm owns (GLW); Finerman owns (GOOG); Finerman owns (HPQ); Finerman's firm owns (HPQ); Finerman's firm owns (IBM); Finerman owns (JPM) ; Finerman's firm owns (JPM) and (JPM) leaps; Finerman's firm owns (MCD); Finerman owns (MSFT); Finerman's firm owns (MSFT); Finerman's firm owns (TGT); Finerman's firm owns (WMT)

For Joe Terranova
Terranova is Chief Market Strategist of Virtus Investment Partners, LTD
Virtus Investment Partners Owns More Than 1% Of (ABAX)
Virtus Investment Partners Owns More Than 1% Of (AMKR)
Virtus Investment Partners Owns More Than 1% Of (CCG)
Virtus Investment Partners Owns More Than 1% Of (CASS)
Virtus Investment Partners Owns More Than 1% Of (CSVI)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (FCFS)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (KRC)
Virtus Investment Partners Owns More Than 1% Of (LDR)
Virtus Investment Partners Owns More Than 1% Of (LPHI)
Virtus Investment Partners Owns More Than 1% Of (NRCI)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (XLV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (XLE)
Virtus Investment Partners Owns More Than 1% Of (XLF)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (XLK)
Virtus Investment Partners Owns More Than 1% Of (XLU)
Virtus Investment Partners Owns More Than 1% Of (SUBK)
Virtus Investment Partners Owns More Than 1% Of (WDFC)
Virtus Investment Partners Owns More Than 1% Of (YDNT)
Virtus Investment Partners Owns More Than 1% Of (DPUKF)

For Brian Kelly
Accounts Managed By Kanundrum Capital Own (BAC)
Accounts Managed By Kanundrum Capital Own (MCP)
Accounts Managed By Kanundrum Capital Own (MS)
Accounts Managed By Kanundrum Capital Own (IAU)
Accounts Managed By Kanundrum Capital Own (SLV)
Accounts Managed By Kanundrum Capital Own (ATW)
Accounts Managed By Kanundrum Capital Own (RDC)
Accounts Managed By Kanundrum Capital Own (DO)
Accounts Managed By Kanundrum Capital Own (DBA)
Accounts Managed By Kanundrum Capital Own (JJG)
Accounts Managed By Kanundrum Capital Own (MON)
Accounts Managed By Kanundrum Capital Own US Dollar
Accounts Managed By Kanundrum Capital Are Short The Yen
Accounts Managed By Kanundrum Capital Are Short the Australian Dollar

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For Rob Rutschow
Credit Agricole does and seeks to do business with NYSE Euronext.
Credit Agricole receives or has received compensation from NYSE Euronext for non investment banking services in the last 12 months.

For Rich Volpe
Volpe has no disclosures

For Joe Saluzzi
No disclosures on the exchanges.

For Mike Khouw
Cantor Fitzgerald & Co is a market maker in (SD)

For Alexandra Lebenthal
Lebenthal has no disclosures

FAST FIRE
Terranova had no disclosure in (RIMM) on 12/17/10

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  • Chief Market Strategist for Virtus Investment Partners & CNBC Contributor

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