The Best of Kass
Among his posts this past week, Kass explained why he is long Sourcefire and Fusion-io, analyzed the week's CPI and industrial production numbers and identified which government bailout recipient will be his biggest bullish investment.
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Delving Into Sourcefire and Fusion-io
Originally published on Friday, Oct. 19 at 11:58 a.m. EDT.
Weak order guidance at Fortinet (FTNT) , Mellanox Technologies (MLNX) and Check Point Software Technologies (CHKP) ; EPS whiffs at Microsoft (MSFT) , Google (GOOG) , IBM (IBM) and Intel (INTC) ; and the threat of Palo Alto Networks' (PANW) market-share inroads in security (overplayed!) have put a pall around a number of new, emerging tech names -- including Sourcefire (FIRE) and Fusion-io (FIO) .
Yahoo! (YHOO) , Fusion-io and Sourcefire are my only technology longs, and they are small positions given my overall negative view of the sector.
While I am a buyer of both on weakness (I added late yesterday), Sourcefire seems the most interesting given its vulnerability to a takeover and its statement that earnings (to be reported on Oct. 30) will slightly beat consensus expectations. That said, Fusion-io has superior fundamentals.
Given CEO John Burris's departure due to colon cancer, Sourcefire is a bona fide takeover target (with an estimated private market value of close to $60 per share). Numerous companies could be interested, including EMC (EMC) , Oracle (ORCL) , Cisco Systems (CSCO) and IBM. Its market share is solid and growing, and the company has a growing presence in the next-generation firewall market. There is plenty opportunity for the company to expand its profit margins.
As to Fusion-io, I would be buying on weakness based on the following:
- Wall Street has been concerned about the sustainability of gross margins, but new products and long-term NAND contracts should offset these questions.
- Flash-based storage/servers are just beginning to gain traction.
- Several competitors are rudderless -- for instance, OCZ Technology (OCZ) and STEC (STEC) have lost their CEOs.
- While Fusion-io is larger than Sourcefire, there is still a chance of a takeover -- Cisco, Oracle and EMC are trying to compete, but if they don't execute, they might be interested buyers down the road.
Obviously, both stocks' performance will be contingent on fourth-quarter guidance.
If either gives an all-clear, the stocks will be off to the races.
At the time of publication, Kass was long FIRE, FIO and YHOO .