Battle Plan for Riverbed Technology (RVBD) and Blue Coat Systems (BCSI)

As mentioned last evening, if the 2 stocks opened very weak in the morning I'd be a buyer. This is not a case of a company (in the case of Riverbed Technology) that is failing on it's business - it's simply an expensive stock that had too high of expectations and simply matching expectations was not enough - hence why I was underweight it, despite loving the space it is in. My plan right now is to add in waves - the first wave of addition was right now at the open - I added 210 shares to the existing 290 shares I had, in the $36's, as the stock is down by 23%. This takes Riverbed to a 2.5% position, from 1.7%.

If the stock weakens further I will add more; the worst case scenario looks like $29 - if we get there I will have to go to a 6-7% type of overweight for Riverbed. Stocks that take a big hit like this take time to recover, so I don't expect a miraculous near term bounce but this is a great price for the longer term - my target for next year is well over $1.00 in earnings and a price of $50+, which is 40% price appreciation from here. Riverbed's 200 day moving average is $38, so when the stock clears that level and shows some strength I will consider adding more there as well. So it's either add more on a pullback to near $30 or a show of strength above $38. In between, it is sort of in no man's land technically.

Blue Coat Systems (BCSI) is falling in sympathy, down about 7%. I added 150 shares thus far down here in lower $44s; this adds to my existing 900 shares. Now Blue Coat Systems also carries the risk of an expensive stock going into earnings as it has had a huge run (but when I started buying it, it wasn't very expensive relative to growth), but in both cases we are talking 2 companies showing tremendous growth in a market starved for it. So going into a year ahead where growth will be harder to find these are the type of names I want to be long. Blue Coat's 50 day moving average is $40, so if we get a move that low, I will be adding there.

This is a major overreaction to news of a small company growing 150% year over year with expanding margins and exciting new products coming down the pike. But for those with patience, opportunities like this provide great profit opportunities. Again, one must discern this type of situation from a company showing degradation to their business (aka when a growth stock turns into a value stock). This sector is just getting started; and cheaper valuations also lead to potential for buyouts from larger firms.

Long both names in fund; long both names in personal account