Equity Research and Investment Analysis

Makers of storage networking equipment, Emulex Corp. (ELX) said that they are having a better fiscal second quarter than analysts had expected. In fact, the new earnings guidance of 16 or 17 cents per share is well above their previous guidance of 10 to 12 cents per share. Furthermore, revenue is now expected to be about $107 million compared to previous estimates of about $90 million. The great performance was driven by strong demand for its products which connect computers and servers to remote storage facilities.

The deal has left Cramer with a bad taste in his mouth, and he is bullish on HPQ and bearish on Dell going forward. At Ockham, although we agree with Cramer's take on the deal, our valuation methodology sees Dell as Undervalued at the current price. As for Hewlett-Packard, the company has advanced steadily about 75 percent since hitting its 52-week lows. So, although the company is strong fundamentally, the price has risen to the point that we would consider it Fairly Valued.

We believe that this deal does make since for Dell strategically, as Wall Street has hammered them on declining profit margins from their laptop and server businesses. However, we think that the price is a bit too high, especially considering Dell management only forecasts cost savings of 6 to 8 percent. It just goes to show you how badly Dell wanted to grab a bigger piece of the IT services market, and they are willing to pay for it. Dell still have about $8 billion in cash on hand, and their CEO has not been shy about saying they will look for more opportunities down the road, but the rich valuation paid on this one could somewhat limit its ability to negotiate on any further purchases.

Amazon's Web Services is still pretty small, but like most SaaS products right now, the potential for this sort of on demand services is immense. Not only is Amazon providing a SaaS solution through its cloud, it is helping enable other SaaS providers in the process. If Amazon is the bridge by which some of these burgeoning SaaS companies can get off the ground they can expect revenue to grow as their clients do.

Even though at Ockham we have a Fairly Valued rating on HPQ, it could be worthy of an upgrade if there is a significant sell off in the second half of the week. Hewlett-Packard has not participated in the tech rally that has been so apparent in the broad market's rally so far this year. As the tech sector has advanced close to 20% this year, HPQ is still just about even for 2009. Furthermore, its closest competitor IBM (IBM) is up more than 25% year to date.

The possible acquisition Sun Micro by IBM is receiving a lot of praise in the financial media today. What is IBM's angle and what are the possible outcomes?

A comment on today's Fast Money program illustrates the difference between traders and investors. Dell could be in for a little bit more rough sledding ahead, but for the patient investor it is just about as sexy as a value play can get.

IBM is leading the morning rally as they continue to keep up great performance in defiance of the difficult economy. In no way are they the most Undervalued company we follow, but they might be the very best performer.

Dell dropped down to below $8 per share as of Monday's close and the valuation seems just too good to be true. With expectations for Thusday's earnings release already low, it just seems like this stock is poised to rally even if the stock comes in with results that are less than spectacular.

The earnings season has picked up speed and much of the results have been disappointing, but there are some bright spots if you are paying attention. In these days were everything seems to be doom and gloom, we thought it would be a great time to highlight some campanies that are doing the right things in these challenging times.

The old adage tells investors "the time to buy is when there is blood on the streets", and today's 22% decline and at least three analyst downgrades certainly qualifies for such a situation. We are contrarian investors at heart and see the market's response to this report as a little overkill. Any better execution for Brocade in upcoming quarters will likely be met with significant price appreciation. Based on the historically normal ranges of price-to-sales and price-to-cash earnings, we believe Brocade could easily achieve a price of $10 based on the current fundamentals.

Our methodology is value-oriented and our most important factors come from the fundamental strength of the stock, which is plainly obvious from looking at our overwhelmingly positive historical valuation chart. However, we agree with Cramer that the long term prospects for the business model are distressing, and this could be the dreaded value trap. At the very least, it appears the company will need to reinvent themselves which can often be long and arduous process. Although this stock looks like a value investors dream, we cannot advise holding this stock for the long term.

Tellabs (TLAB), which sells its products and services to telecom providers to help them manage increased traffic on lines, reported its fiscal fourth quarter results on Tuesday morning and their stock surged nearly 13%. The market is shaking off a slight revenue disappointment because there were other positive developments in Tellabs' report. For one, the company has initiated a quarterly dividend of $.02 per quarter which, based on yesterday's close, would imply a yield of 1.3% right off the bat.

Intel Corp. (INTC) delivered a tremendous fiscal fourth quarter last week, but the stock gapped down nearly 3% on the following day and has yet to recover. This head-scratcher of a situation has CNBC's star pundit Jim Cramer felling bullish on Intel, and he even said that he's increasing his exposure to Intel in his Charitable Trust if it falls below $20.

IBM's fourth quarter demonstrates that the company is performing quite well, and that could be a great thing for the technology sector going forward. Big Blue is managing impressive earnings growth and margin expansion and they deserve credit for that. That being said, IBM's story is well known to the market and it is no longer a great buy at these price levels. We would advise investors to look to some of the lesser known success stories in the tech sector to take advantage of this trend.

Makers of storage networking equipment, Emulex Corp. (ELX) said that they are having a better fiscal second quarter than analysts had expected. In fact, the new earnings guidance of 16 or 17 cents per share is well above their previous guidance of 10 to 12 cents per share. Furthermore, revenue is now expected to be about $107 million compared to previous estimates of about $90 million. The great performance was driven by strong demand for its products which connect computers and servers to remote storage facilities.

These are exciting times for technophiles as everyday technology becomes more and more integrated into life. In the first few days of the year techies are treated to a major unveiled of Google's (GOOG) much anticipated Nexus One handset. Furthermore, a feast of new gadgets and gizmos will be on display later this week at the annual Consumer Electronics Show or CES for those in the know. There is a buzz and an excitement in the air surrounding the tech sector, which begs the questions: Could tech stocks repeat the impressive run they enjoyed over the last year?

The negative sentiment swirling around Research in Motion had brought the stock very much out of favor with the market. RIM has woefully underperformed the competitors mentioned earlier over virtually any timeframe in the past year. At Ockham, we continue to believe that RIM is Undervalued, and even after the run-up in after hours it presents an attractive opportunity to investors.

Google is currently within its historically normal valuation ranges, yet if it were able to achieve the midpoint of these ranges it would imply a price for GOOG of $790. Google is still growing rapidly but may not be able to command the same premium from the market as it did as a less mature company. Clearly, we are still optimistic about Google's long term prospects just like Cramer; however, this not news to the market and there are plenty of cheaper stocks.

As November sales totals demonstrate, these are difficult times for the video game industry as a whole. However, value seeking investors could do worse than picking some unloved players in this market that continue to perform adequately through the challenges.