Friday’s Stock Market Losers: Nvidia, CA, Cirrus Logic

Among the biggest losers in Friday’s early trading are Nvidia (Nasdaq: NVDA), Cirrus Logic (Nasdaq: CRUS) and CA (NYSE: CA).

Top Percentage Losers — Friday, May 14, 2010
Company Name (Ticker) Intra-Day Price Intra-Day
% Loss
52-Week High 52-Week Low
Nvidia (Nasdaq: NVDA) $13.19 -10.0% $18.96 $8.33
Cirrus Logic
(Nasdaq: CRUS)
$13.94 -6.8% $15.74 $3.25
CA (NYSE: CA) $20.50 -6.3% $24.15 $16.12
*Table includes companies with minimum market capitalizations of $200 million and three month trading volumes of at least 100,000 shares. All percentage returns are listed as of 10:40AM Eastern Standard Time. Click on ticker symbols for up-to-the-minute price quotes and percentage gain data.

Graphics Chip Maker Nvidia Lower on Guidance

Investors are pushing shares of Nvidia (Nasdaq: NVDA) down -10% this morning after the graphics chip maker delivered a mixed message Thursday night. First-quarter results were simply great with sales up +50% from a year ago, but seasonality will push second quarter results slighter lower on a sequential basis, and a tick below consensus forecasts. Investors are seemingly ignoring the fact that second-quarter sales results will still be some +25% higher than a year earlier.

#-ad_banner-#This sell-off clearly highlights the new market mood: great growth is now expected, and missteps will not be tolerated. If shares were right near the 52-week high, you could understand a bout of profit-taking, But shares had already fallen -20% since the middle of April and weren’t “priced to perfection.” Chalk it up to a culture of fear. In strong markets, investors tend to brush past the bad news and focus on reasons for optimism. But the reaction to Nvidia’s guidance may imply a shift toward a focus on potential negatives rather than positives.

It’s worth noting that inventories rose +17%, which implies that management had previously expected second-quarter demand to be a tad more robust (and in line with the slightly higher consensus forecasts). But there’s no reason to think the nascent rebound in PC demand is starting to wane. Some firms like Intel (Nasdaq: INTC) have suggested that this current positive cycle for PCs (and the graphics chips that go into them) should be quite sustainable.

Finally, a lawsuit with Intel is currently keeping certain Nvidia chips – which account for 30% of its sales – off the market. More than likely, that suit will be resolved with Nvidia agreeing to pay modest royalties, and those chip sales will resume.

Despite the noise, there are some real positives. First, as noted above, the company’s sales are once again growing at a fast pace. Profits are expected to more than double in the current fiscal year. Second, the company has developed chips that can be used in a coming wave of PC-based tablet computers aimed at the market that Apple (Nasdaq: AAPL) has pioneered. That should give a tangible boost to Nvidia later this year. Last, Microsoft’s (Nasdaq: MSFT) new mobile phone, Kin, uses Nvidia chips, and any traction for the software giant would drive chip demand.

Action to Take –> With more than $1.7 billion in cash in the bank, and $800 million in annual spending on R&D, Nvidia has proven its staying power time and again. As short-term investors focus on the quarter-to-quarter gyrations, stay focused on the long-term. In time, Nvidia invariably proves itself again and again to be a leading-edge graphics chip maker. Friday’s myopic negative sentiment creates an excellent entry point for long-term bulls.


CA Shows Some Age Spots

CA (NYSE: CA), formerly known as Computer Associates, is showing signs of age. The software and IT services company historically made acquisitions that helped to keep it focused on the leading edge of the market and also helped to keep sales growing (economic downturns notwithstanding). But as fiscal fourth-quarter earnings released Thursday night indicate, the business model looks tired. That stands in stark contrast to rivals like Oracle (Nasdaq: ORCL) and SAP (NYSE: SAP), which keep snatching up valuable smaller players.

Just last month, CA took down guidance, and Thursday night’s results were even lower than that guidance, as conditions recently deteriorated further. Management cited a host of different sales challenges, implying it will be quite some time before we see a sharp turnaround. The increasingly gloomy outlook pushed shares down nearly -7% in Friday trading.

Action to Take –> CA may look to start making more acquisitions to boost growth, but on an organic basis, the company looks quite mature. Shares will likely be range-bound for a while as the tepid outlook will be offset by an ongoing large stock buyback. Best not to take any action here.


Cirrus Logic falls in aftermath of Cramer Tout

Fast-moving investors can make money off of CNBC’s Jim Cramer. But they should know that Cramer-induced gains rarely last as most of the buyers are short-term investors that may be out of the stock in one of the next few sessions. Case in point: Cramer touted Cirrus Logic (Nasdaq: CRUS) after the market closed on Monday, and shares opened up +15% on Tuesday and rose another +7% in the subsequent two sessions. But just like in the game of musical chairs, you need to be prepared to move fast when the music stops. The music stopped this morning, and shares of Cirrus Logic are off more than -6% today.

Action to Take –> You may want to steer clear of the “Cramer” stocks altogether. As an individual investor, it is hard to get in at the beginning of any Cramer-inspired move. The market makers capture most of the profit on the first day’s pop – if they are poised to reflect all that gain before the market opens. And Cramer’s long-term track record is uninspiring. The man delivers very savvy educational lessons to investors, but it’s hard to make money off of his stock picks.