Telecom YES, Resources NO! Maverick investors take note!

This announcement caught many by surprise:

LONDON/FRANKFURT, March 21 (Reuters) – Deutsche Telekom <DTEGn.DE> said it would focus on organic growth and return cash to shareholders after agreeing the sale of T-Mobile USA to AT&T <T.N> for $39 billion, lifting its shares to a two-year high.

An investment maverick knows that the real action (opportunities) is usually far outside the herd’s field of vision.  Of course, it doesn’t make life ‘easier’ having a contrarian bent, as evidenced by my own miscalculation concerning Cisco (CSCO-US) which I bought instead of DELL (duh!) late last year.  I discussed this bonehead call in an earlier posting.  Just because I lost money in that name, doesn’t mean it goes off my ‘radar.’  The company’s misfortune had made it a darling of the financial muggers (short seller interest is HUGE),  but there are some things that continue to make it interesting.  Consider this news item concerning Cisco:

Traditional rivals like Juniper Networks Inc <JNPR.N> are challenging Cisco’s market position in routing and switching. But they aren’t the only ones vying for a greater piece of corporate spending.

Onetime sales partner Hewlett-Packard <HPQ.N> is now a fierce rival, having bought network equipment maker 3Com after Cisco’s foray into HP’s server territory.

China’s Huawei Technologies Co [HWT.UL] and ZTE Corp <000063.SZ> are also gaining strength, while analysts say Alcatel-Lucent <ALUA.PA> is recovering from post-merger confusion and winning more accounts.

“Cisco needs to figure out where they want to continue to play, and … whether they need to exit some product lines,” said Mizuho Securities analyst Joanna Makris.

Chambers told investors on a Feb. 9 conference call he was forming a working group to boost margins, and has since made some changes.

Last week, the company killed an experiment with Cisco Mail, an e-mail service that tried to compete with Google Inc <GOOG.O> and Microsoft Corp <MSFT.O> but never took off. Some analysts said the move was an admission that its $215 million acquisition of PostPath was a failure.

Cisco also created the role of Chief Operating Officer to improve the way its different units worked together.

Cisco made aquisitions in consumer electronics (where they’ve no value to add) and encroached on the likes of HP (servers) in an attempt to broaden or diversify their strategic base – bad moves in light of the enormity of competition in those areas (does anyone actually own a flip-camera?) 

The company is under enormous pressure to ‘do something,’ – divest assets/businesses (like Deutche Tel is doing) or return some of the $40 BILLION in cash it has on hand.  Volatility and ‘noise’ is what to expect in the short term, but should managment have the wherewithall to focus on it’s core business – which would mean fighting back against competition like Juniper Networks and the like who have used Cisco’s lack of focus to their own advantage – then the stock should recover nicely.  The key is to make those shortsellers cover.

As I type this, I’m listening to a hedge fund manager on TV admit they’ve nothing relating to telecom in their portfolio – and they’re still clinging to energy related situations.  This is good news to those with a maverick inclination.  What you choose to begin betting on is more a function of risk appetite than anything.  Look at how different the charts are for Juniper Networks, Dell and Cisco:

Of course, there’s always Bell, and the cablecos to have a look at.   But shouldn’t everyone continue to obsess about metals, golds and energy?  My golly yes – everyone “ELSE” should indeed so the few of us can posititon ourselves in ‘future’ winners while they’re cheap.  If the global economy (see my prior post) continues to grow, I can promise you corporations will replace desktop computers than are 3 to 5 years old (i.e. obsolete) first, then discover there’s not enough broadband in their network to support the upgrades, and the next leg of cap spending will be content driven.  Sure there are other sectors worth owning (diversification works as long as you’re not hanging on to future torpedo stocks) but more about those as I have the time and energy to write about them – or maybe you can leave comments to educate me?  Please do!

Riding Portrait

Invest to Live, Live to Ride

About Mal Spooner

Malvin Spooner is a veteran money manager, former CEO of award-winning investment fund management boutique he founded. He recently authored A Maverick Investor's Guidebook which blends his experience touring across the heartland in the United States with valuable investing tips and stories. He has been quoted and published for many years in business journals, newspapers and has been featured on many television programs over his career. An avid motorcycle enthusiast, and known across Canada as a part-time musician performing rock ‘n’ roll for charity, Mal is known for his candour and non-traditional (‘maverick’) thinking when discussing financial markets. His previous book published by Insomniac Press — Resources Rock: How to Invest in the Next Global Boom in Natural Resources which he authored with Pamela Clark — predicted the resources boom back in early 2004.
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2 Responses to Telecom YES, Resources NO! Maverick investors take note!

  1. Pingback: Scorecard for Stock Markets, Economy, and Financial Press - Not Business As Usual

  2. Wane MacDow says:

    Hi Mal

    A Hell of a Read!

    I sell funds, not individual stocks but like to treat funds as just one overly big stock simply because fund managers tend to overweight sectors unless they are closet indexers. There are funds that do offer good diversity and decent year over year returns but that doesn’t mean Buy, Hold and Die, think AIC. If the trend changes and the fund is out of sync then it is time to move on. Sentimentality is for lovers, not investors. I like to review portfolios every 90 days and keep a 300 fund watch list. I don’t use anywhere near that many funds but it is nice to have a feeling for what is going on.

    I have been paring back on resource, gold and oil and looking to other sectors such as Real Estate and Technology to a lesser degree. Consumer defensive is an area of interest. Funds that consistently beat the index with less risk ring my bell. I like high distribution yields especially for income takers.

    Thanx

    Wane

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