One of the nice things about maintaining a fairly broad and diversified watchlist of stocks is that you can’t possibly watch every stock closely on a daily basis. Instead, you tend to scan the list, looking for quick-glance clues that might tell you to take a closer look. Because of that, many of the stocks that I keep in my watchlist don’t get a ton of attention, sometimes for months at a time. Why is that a good thing? Because from time to time, coming back to a stock that I haven’t looked at closely for several months provides fresh information that indicates a stock could be offering an interesting new opportunity, or is about to offer one.
The latest earnings season is starting to wind down, with an encouraging number of stocks beating earnings estimates, even as analysts have pointed out that trade war tensions and tariffs have been major contributors to a pretty broad pattern of weakening growth. Some of those concerns could fade even further, however, if “Phase One” of an expected deal between the U.S. and China is finalized before the end of the year. This week the market seems to be inclined to bet bullishly about that prospect, to the point that is mostly dismissed a comment from President Trump that he won’t hesitate to impose a fresh set of higher tariffs if a trade deal isn’t reached. Just more saber-rattling? Maybe.
Any sign of compromise – or even better, an actual agreement signed by the leaders of both nations – is something that the market is anxious to treat as a sign that the economy will remain healthy, and that the headwinds from tariffs will abate, giving corporate America room to operate more freely and return to growth. Particularly for cyclical sectors like Industrials, or Technology, trade peace should be a positive catalyst to remove barriers to improve profitability and extend the longest bull market in recorded history even further.
Juniper Networks (JNPR) is an example of the kind of stock in a trade-sensitive sector that could benefit; they’re a solid, mid-cap player in the telecommunications and networking industry that has offered some useful investing opportunities for my investing method in the past. The stock has rallied from a one-year downward trend by almost 17% since August, which a growth or momentum-oriented trader would certainly read as a positive sign for the weeks and months ahead. From a value-oriented standpoint, the stock doesn’t offer the kind of bargain I prefer to work with, but despite its increase over the past few months, it remains down nearly -15.5% since November of last year.
Fundamental and Value Profile
Juniper Networks, Inc. designs, develops and sells products and services for high-performance networks to enable customers to build networks for their businesses. The Company sells its products in over 100 countries in three geographic regions: Americas; Europe, the Middle East and Africa, and Asia Pacific. The Company sells its high-performance network products and service offerings across routing, switching and security. Its products address network requirements for global service providers, cloud providers, national governments, research and public sector organizations, and other enterprises. The Company offers its customers various services, including technical support, professional services, education and training programs. The Company’s Junos Platform enables its customers to expand network software into the application space, and deploy software clients to control delivery. The Junos Platform includes a range of products, such as Junos Operating System (OS) and Junos Space. JNPR has a current market cap of about $8.7 billion.
Earnings and Sales Growth: Over the last twelve months, earnings declined about -12%, while revenues decreased almost -4%. These numbers improved in the last quarter, as earnings jumped about 33% higher, while sales rose almost 3%. The company’s margin profile shows that Net Income as a percentage of Revenues, which had been declining in the middle part of this year, has stabilized, at 8.34% over the last twelve months and 8.76% in the last quarter.
Free Cash Flow: JNPR’s free cash flow has declined steadily since the beginning of 2017, when it was almost $1.3 billion, to about $525.6 million in the last quarter. It’s worth nothing that this number increased from about $400 million in the last quarter, and translates to a Free Cash Flow Yield of about 5.82%.
Debt to Equity: A has a debt/equity ratio of .40. This is a conservative number. JNPR currently has a little over $2.25 billion in cash and liquid assets against only $1.85 billion in long-term debt. The company’s balance sheet indicates their operating profits are sufficient to service the debt they have, with very strong liquidity is more than adequate to make up for any potential operating shortfall.
Dividend: JNPR’s annual divided is $.76 per share; that translates to a yield of 2.91% at the stock’s current price.
Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for JNPR is $13.42 per share, and which translates to a Price/Book ratio of 1.946 at the stock’s current price. Their historical average Price/Book ratio is 2.03, which suggests the stock is currently trading at a discount of just 4.5%. The stock’s Price/Cash Flow ratio suggests the stock is over-valued by about -16%. On a Price/Book basis, the stock would need to drop just below $22 per share to start offering a really attractive value proposition, while the Price/Cash Flow ratio puts a lower value target around $17.50 per share.
Technical Profile
Here’s a look at the stock’s latest technical chart.
Current Price Action/Trends and Pivots: The red diagonal line traces the stock’s downward trend from November of last year to its August bottom at around $22.50 per share; it also provides the baseline for the Fibonacci retracement lines shown on the right side of the chart. JNPR’s upward trend since August has given the stock momentum to push above the 38.2% Fibonacci retracement line at around $25.50, and which should act as the stock’s closest support level. Resistance is around $27.60, where the 61.8% retracement line rests. The stock’s current momentum suggests that if it can break above a pivot high from just about a week ago a little above $26.30, the stock should push to the $27.50 level at least, with further upside at around $29 based on past pivot activity in May of this year and September of 2018. If the stock drops below support at $25.50, it would need to break its next support at $25 to reverse the current downward trend.
Near-term Keys: The odds right now are working in favor of JNPR’s upward trend, suggesting that if you’re looking for a short-term trading strategy, the smart bet is to buy the stock or work with call options. I think the best signal to do that would come from a break above $26.30, while keeping an eye on the $27.50 level as a potential quick-hit target price, or $29 if bullish momentum continues. A bearish signal to short the stock or work with put options wouldn’t really be useful unless the stock drops below $25; however that could offer some downside potential down to about $23 for a bearish trade. While I generally like JNPR’s fundamentals, I don’t think they’re strong enough to counter the stock’s valuation metrics, which is why this isn’t a stock I would take seriously right now for any kind of long-term focused, value-oriented investment.