While noting that he would “never say never,” Chambers told the cable news channel that Cisco doesn’t “have any negotiations with any large companies [under way] at this time,” noting that his company is focused on buyouts of small- and medium-sized companies.

Shares of the San Jose-based Cisco jumped $1.28 each, or 5.65%, to close at $23.93 yesterday. Investors bid up the stock of the networking giant after its fourth-quarter results exceeded Wall Street estimates, suggesting the bellwether tech giant’s business remains strong – despite the global financial slump. The fourth-quarter results were released last Tuesday.

The company’s stock had recently been trading at its lowest level in nearly two years, though shares jumped 3% on Tuesday ahead of the earnings statement, and then nearly 6% yesterday in response to the report, MarketWatch.com reported.

For the three months ended July 26, Cisco reported net income of $2.01 billion, or 33 cents per share, compared with profits of $1.9 billion, or 31 cents per share, a year ago. Adjusted income was actually 40 cents a share, a penny ahead of the 39 cents analysts had been expecting Cisco to report.

Revenue was $10.4 billion, an increase of 9.9% from revenue of $9.4 billion in last year’s fourth quarter and ahead of the $10.3 billion Wall Street was expecting. It also marked the first time that Cisco’s quarterly revenue exceeded the $10 billion mark.

Cisco’s broad product array and deep industry reach are reassuring investors that Chambers can boost revenue and profits even as companies trim their information-technology budgets.
In fact, orders from large corporations increased 13%, spurred by demand for equipment used in company data centers – results that easily outpaced the 5% increase in orders from telephone and cable-TV companies, Bloomberg News reported.

“It’s tough out there, no question,” RBC Capital Markets analyst Mark Sue said in a research note. “Yet Cisco’s portfolio approach and diversification across geographies and product segments seem to be working well as evidenced by its strong revenue growth.”

Indeed, Jerome Dodson, CEO of Parnassus Investments in San Francisco, told Bloomberg that “the stock should be trading at a higher price.”

“Given the weak economy, the results are very good,” said Dodson, whose firm oversees $1.5 billion in assets.

For the fiscal first quarter, Cisco said sales would advance at about an 8% clip, implying revenue of $10.3 billion – just below Wall Street’s estimate of $10.4 billion. In the second quarter, sales will rise 8.5%, reaching $10.7 billion – meeting expectations, according to Bloomberg.

During a conference call with analysts and investors, Chambers, 58, said he expects “economic challenges” for “a few quarters.” But he maintained the company’s long-term annual sales growth target of 12% to 17%.

However, Cisco is forecasting sales for only the first half of the year – and not the entire year, as has been customary – said company Chief Financial Officer Frank Calderoni. The reason: The current economic conditions are so uncertain that management doesn’t feel comfortable making longer-range predictions.

“Expectations are very low,” Christopher Baggini, a fund manager at Aberdeen Asset Management Inc. in West Conshohocken, Penna., told Bloomberg Radio. “Chambers had said just a month ago how most of their customers were discussing a rebound in 2009, certainly not in the second half of 2008.”

For the full year, overall product sales advanced 8.8% to $8.64 billion. Sales from services, which include consulting and support, gained 16% percent to $1.72 billion, Cisco said. Router sales rose 8% from a year ago, while sales from switches rose 5%.

Orders in the United States and Canada advanced 7% from last year, and ran well behind international bookings, which rose in excess of 30% in China and more than 40% in Russia and Mexico.

In July, tech stalwarts Microsoft Corp. (MSFT) and Google Inc. (GOOG) both reported lower-than-expected profits, fueling concerns of a major demand slowdown for computer-related products. In fact, Google CEO Eric E. Schmidt said his company was facing “a more challenging economic environment” for its first time ever.

At yesterday’s closing price, Cisco’s shares are down 69% from their all-time high of $77.31 and are 30% below their 52-week high of $34.24. Although most investors realize this will never be the great growth stock that it was a decade ago, Money Morning Contributing Editor Horacio Marquez says that – when it comes to Internet-infrastructure gear – Cisco remains the proverbial “800-pound gorilla,” the market leader and dominant-industry player, meaning it’s too important for investors to give up on.

Source: Cisco Says “No Deal” for EMC; Shares Jump on Better-Than-Expected Financial Results

Heavy volumes of options trading – particularly when biased to one side – gives a clear signal that a stock is about to make a big movement.

And Louis says Friday’s huge trade in short-term call options for EMC Corporation (NYSE: EMC) suggests its share price is about to rally big time. Louis says it’s time to long on this stock now…

We all know the adage, “There’s no such thing as a sure thing.” And it’s especially true when it comes to investing. But for me, one indicator comes darn near close…

It’s not insider buying. Sure, company executives forking over millions of dollars to purchase their own stock – like Aubrey McClendon of Chesapeake Energy (NYSE: CHK) continues to do – is decidedly bullish.

And exhaustive research bears this out.

A recent study by Morgan Stanley found companies with heavy insider buying outperform the S&P 500 by an average of 13.7%.

But here’s the rub: Because of strict SEC laws and the fact that insiders tend to be the longest-term investors out there, a considerable lag usually exists between the purchases and meaningful price appreciation. The indicator I’m referring to is not an announcement about a massive stock buyback plan, either.

Here, too, the data favors long-term investors. Companies that announce stock buybacks often outperform the broad market over a four-year period by a margin of 45%, according to studies out of the University of Illinois at Urbana-Champaign.

But again, it can take months or years to recognize the above-average gains.

Blame it on our instant gratification culture, but I prefer an indicator that often delivers outsized gains in a few weeks, days, or even a few hours.

So what is it?

The Holy Grail to Lightning Fast Gains

Abnormal – and lopsided – options activity. Ridiculously lopsided. Like we witnessed Wednesday with EMC Corporation (NYSE: EMC)…

Wednesday, more than 300,000 August $15 options traded hands. That’s 17 times the average daily volume. And the activity was unmistakably lopsided. Call options buyers outnumbered put options buyers by more than three to one.

Investors are certainly banking on a major rally in the next two weeks. And as options expert Jon Najarian put it, “I can’t remember seeing a frenzy like this.”

So let’s dissect these bets to fully understand why this is so bullish…

For the call buyers to make money, they need the stock to move above $15… in only two weeks. Based on Tuesday’s closing prices, that means EMC would need to rally approximately 12% for these investors just to break even.

No small feat given the time constraints… and the fact EMC already reported earnings. You see, it’s not unusual to see increased options activity preceding earnings announcements, as investors try to front-run a strong or weak report.

But there’s no known catalyst looming on the horizon for EMC. So in Vegas terms, these options purchases appear to be sucker’s bets. So why would so many institutional buyers be so foolish?

(By the way, I know retail investors weren’t behind the activity because the options contracts were being purchased in blocks of 5,000 to 10,000 contracts, equivalent to trade sizes of $200,000 to $400,000 based on the average contract price yesterday.)

Put simply, they’re not stupid. They know something.

And research out of Yale University on abnormal call options volumes strongly suggests they know a takeover is afoot. (If you’re interested in all the findings, the study is titled “Informational Content of Option Volume Prior to Takeovers.”)

If so, EMC would rally big time on the announcement. Takeover premiums historically average 22%… and in recent history they’re higher, closer to 40%.

No doubt, a 20% to 40% move for EMC’s stock would make the $15 call options much more valuable.

So is EMC about to get bought out? The options activity certainly suggests so, with networking giant Cisco Systems, Inc. (Nasdaq: CSCO) the most likely suitor.

Here’s another, and in my opinion, more likely outcome. EMC is getting ready to announce a takeover or sale of its 85% stake in VMware, Inc. (NYSE: VMW).

And that could be just as bullish…

Recall, EMC owns 85% of VMware. That was a great thing when VMware went public at $29 and quickly ran up 333% to $125.25. (A move subscribers to my Hot IPO service got a piece of, booking a 40% gain in just 14 days.) It brought EMC right along for the ride.

Then Microsoft and Oracle aggressively entered the virtualization space. And the added competition cut the knees out from under VMware, with shares now languishing around $35. Naturally, EMC’s stock followed the misfortunes of VMware.

But most agree EMC’s been overly punished. And a quick way to remedy the situation would be to sell its 85% stake in VMware to the public… or a cash-heavy competitor. As we know, Microsoft and Oracle don’t exactly lack cash or shy away from acquisitions.

So, when can we expect an announcement?

Well, if it’s going to happen, the options activity is betting it will come in the next 15 days. And that’s possible. EMC is set to present at the Pacific Crest Securities technology conference in Vail, CO on August 4. They could make an announcement then. Especially since it’s a Monday and most takeover announcements come on Mondays.

But no matter when an announcement comes, here’s what’s important…

When I see ridiculously lopsided options activity like yesterday with EMC, I get excited. It’s the surest indicator I know of.

As Benjamin Franklin once observed, “Three can keep a secret, if two of them are dead.” And when we see abnormal options activity, we know nobody’s dead… and that the secret is out.

Make no mistake, insiders positioned themselves to profit off EMC before this secret is made publicly known. And we might want to join them.

To be clear, this ranks as a speculative trade. So if you decide to act on the surest indicator I know, you’ll want to ratchet down our recommended position size of 4% to 1% (or less).

And play it one of two ways…

Option 1: Simply buy the stock, using a 25% trailing stop. And wait for the news to break.

Option 2 (more risky): Be like the professionals and buy the $15 call options. If you choose this route, at least increase your odds of success by going with a later expiration date. Say, the October or January 2009 calls. It will cost you a little more, but if the insiders are right about a big development and just wrong about the timing, you still make out like a bandit.

Source: Get Long This Stock NOW… 

“In general, spin-offs let the markets more accurately value the operations separately,” says Louis Basenese, editor of The Takeover Trader. “So it’s important to know the parent companies’ motivation. Are they divesting underperforming assets to revive the parent stock, or breaking out quickly growing operations being held back? In my experience, if you stick to spin-offs of the latter, you’ll be handsomely rewarded.”

There are many reasons a corporate parent might decide to spin-off a subsidiary. And as Basenese said, the parent’s motivations are key to making good investment picks. Here are some examples of investor-friendly reasons for a spin-off:

• Streamlining or consolidating business operations.
• Tying management performance more closely to the subsidiary’s performance.
• Freeing a subsidiary that is being held back by the parent corporation’s regulatory environment or other factors.

There have been numerous studies done on how spin-offs tend to outperform the market as well, if not better, than their former corporate parents. According to a study titled “Restructuring Through Spinoffs,” published in 1993 by Penn State University, spin-off companies outperformed peers and the S&P 500 Index by approximately 10% per year in the first three years after the initial spin-off.

The study, which looked at 25 years of market history, also found that parent companies outperformed peers by more than 6% the year after the spin-off.

A 1999 McKinsey study of 168 corporate restructurings showed that spin-offs substantially outperformed the market. The McKinsey study of companies spun off between 1988 and 1998 showed that the new firms had a two-year annualized total return to shareholders of 27%, versus 14% for the Russell 2000 and 17% for the S&P 500.

Spin-offs tend to outperform because investors often sell when they receive stock in a new company they never intended to own, keeping share prices low initially. Also, index fund managers sell off spin-off shares if the new company is not added to the original parent company’s index. Institutional fund managers will also sell spin-off shares due to lack of liquidity or dividend.

At the same time, management’s performance will have a greater impact on the shares of the spin-off than it had on the parent company, often spurring greater efforts to innovate and succeed.

A Spin-Off that Streamlines

If someone asked: What fast-food company is the world leader in terms of total restaurant locations? Most people would probably guess McDonald’s Corp. (MCD), but the correct answer is fast-food rival Yum! Brands Inc. (YUM), with 34,000 locations.

Yum is the proprietor of such well-known brands as KFC, Pizza Hut, Taco Bell, Long John Silver’s and A&W All-American Food Restaurants. Yum also has East Dawning, an Asian-markets chain operated by its Yum! Restaurants International (YRI) division.

The former PepsiCo. Inc. (PEP) subsidiary was spun-off in 1997 under the name Tricon Global, which was later changed to Yum in 2002. In the words of one PepsiCo executive, “restaurants weren’t our schtick,” The Economist reported.

Freed from the beverage giant corporate parent, President and CEO David C. Novak was able to develop economies of scale across Yum’s various restaurant brands. Prior to the spin-off, the chains had acted more like competitors. But Novak was able to unify the various lines and put their combined purchasing power to work to score better terms from suppliers.

Novak also centralized advertising for the chains. Dual locations, where products from two chains were offered at the same location, were opened. Such innovation helped push Yum to the top the fast food industry and have allowed Yum shares to increase almost 400% from its 1997 spin-off.

That growth has been due in large part to a successful overseas strategy. Yum has done exceptionally well in China, where most consumers think of KFC when they think of chicken. And now the company is planning to expand further into India, another emerging market with a rapidly growing middle class.

Yum plans to open several Taco Bell locations in India in the latter half of 2008. India’s Economic Times reported that Yum, which already has KFC and Pizza Hut locations in India, plans to double its revenues from India in the next three years, with most of this growth coming from Taco Bell.

Yum also has been pushing to increase domestic sales by revamping U.S. menus, increasing breakfast options, and reducing company ownership through a re-franchising program of its KFC and Pizza Hut brands, The Associated Press reported. And it looks like that hard work is starting to pay off.

UBS AG (UBS) recently upgraded Yum shares to a “Buy” from “Neutral.” In a note to clients, analyst David Palmer said “while some investors have expressed concerns that the U.S. re-franchising appeared to slow versus company guidance in 2007, we expect to see that trend reverse in 2008 and 2009.”

“We believe the end result for Yum will be a faster-growing, more-international, higher-return company by 2010 – with 40% or more of its enterprise value coming from its rapidly growing China business,” Palmer added.

Yum shares have traded between $28.37 and $40.60 in the past 52 weeks. Yesterday (Tuesday), shares closed at $38.06.

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