Investment Lessons You Will Not Learn in B-School

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8/16/2012 4:18 PM

Investment Lessons You Will Not Learn in B-School
Market Commentary
By Charles Payne, CEO & Principal Analyst
JDSU & the Beret

Corporate news regarding massive stock buy backs and higher dividends has gone largely unnoticed by the mainstream media but I think part of the reason is a direct reaction to President Obama demanding they put money to work. Of course he meant to hire workers they don't need yet. I do believe that could be changing but before that money goes to hire people a lot will be used for capital investments on equipment to meet increased demand and remain competitive.

On that score, Cisco posted a better than expected number and hiked their dividend as well. Networking is an area that appears to be gaining traction and one name in the space that looks intriguing is JDS Uniphase. The stock is bouncing off a perfect double bottom and volume is compelling. In fact, today it looks poised to trade 50% more than normal and that's huge in these low volume days. I think the last quarter's earnings could have marked a bottom.

Revenues +10% q/q
Operating margin 13.3% from 11.4% q/q
Americas revenue +23.5%

I once called this the 800 pound gorilla in the optical networking space after the company made a series of major acquisitions during the telecom/internet boom. Well I learned two value lessons.

A) An 800 pound gorilla in a shrinking jungle has no kingdom
B) Never buy stock when the CEO shows up in a beret

It's not scientific, but Jozef Strauss was appointed CEO May 2000 and the stock was on fire. He came on television all the time with a cavalier attitude and wearing a beret. When you have a hot stock I guess you can do that but I found it odd. By Jan 2001 the stock was $63.00 a share but that year the company posted a record loss of $56 billion and fell off a cliff.

The stock looks compelling now; it's coming on strong changing hands at just 1.5 sales, a book value of 2.5 and only an 11 PE.

Plus, I don't think the current CEO wears a beret - at least not during earnings calls and television interviews.

The stock is on the cusp of breaking through its 200-day moving average; I see room to $13.50 -$14.00 for a trade.

- Charles Payne

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