In keeping with the spirit of culling positions that are not reacting too favorably in this environment / trying to limit positions in the fund - I am closing the fund's position in F5 Networks (FFIV). This is yet another networking play, but I just don't have the conviction in this name that I do in Ciena (CIEN), Blue Coat Systems (BCSI), or Riverbed Technology (RVBD). Or Cisco (CSCO) for that matter! So with that, along with the technical picture I am exiting.
I'd like to see what the company has to say about the recent aquisition in the next earnings report/call on October 24th and then re-assess.
So while correct on the call on F5 Networks, I am still feeling collateral damage in my large Blue Coat Systems holdings. I wrote yesterday in my battle plan for Riverbed and Blue Coat:
Blue Coat's 50 day moving average is $40, so if we get a move that low, I will be adding there.
I will still wait for $40, but I did decide to add another 100 shares here in the $41s. Now with all the networking stocks imploding in succession (Riverbed Technology, Juniper Networks, F5 Networks) this could be a foolish move, but at some point I am hoping all these disappointments are reducing expectations for Blue Coat Systems. If not I will be suffering a big hit in a top holding. Thus far the mine field that is earnings season has only taken out a few smaller sub 2% positions which is fine; but if I take a hit from a major top 10 holding that would hurt short term performance a lot more.
So that is the risk I take with adding to Blue Coat Systems (BCSI) ahead of earnings. With that said, this is why I try to sell and buy in "pieces" as we move up and down - I have banked a lot of the profits in Blue Coat Systems on the way up and am now buying those positions back on the way down. Remember, this was nearly a 6% position for me before it made its huge run; so even with recent buying I am not close to rebuilding the position to that level. The company does not report until November so it won't be able to implode until then ;)
As an aside, I went through Riverbed Technology's conference call and it all sounded good to me - this is simply a company in which momentum investors expected too much. The main negatives going forward for Riverbed is its tax rate increases from 10% this year to 40% next year, and Q1 2008 is seasonally slow - so near term catalysts are probably not there but by spring 2008 this stock should be ready to go again - I expect a long period of base building and as I stated yesterday will be buying more if we get below $30. On the positive side, they are executing well, expanding customer base, introducing new product, and will be getting operating margin up from 18% now to 25% within 14 months. All impressive. But all momentum investors care about is quarter over quarter revenue growth, so Riverbed took a bath; and I don't see those momentum guys returning anytime soon.
Long Blue Coat Systems, Riverbed Technology, Ciena, Juniper Networks in fund; long Blue Coat Systems, Riverbed Technology in personal account.
