Will Infosys Survive The Economic Downturn?
Infosys Chief Financial Officer V. Balakrishnan stated the U.S. is "facing a fiscal cliff," and added that Infosys has limited revenue exposure to General Motors(GM) , whose IT chief recently made a comment that suggests the automaker is cutting back on outsourcing spending in its technology budget.
TheStreet's Timothy Collins wrote a valuable Real Money Pro article about how to use options to play the earnings release titled Two Earnings Plays to Watch. (You need a Real Money Pro subscription, but if you don't have one take a look at the free trial offer so you can read it.)
Based on my experience with gap-downs following earnings misses similar to Infosys, investors will see short-term lows Friday or Monday. Thursday's low testing $38 with a strong bounce higher suggests it won't take much time for the market to figure out the first knee-jerk reaction may be overdone.
Bargain hunters and short-sellers covering positions could push the price up quickly in relation to the gap down price this week. Looking at the chart, I expect short-term resistance near $40 and again at $42. Round numbers often attract like a price magnet and repel, causing a bounce.
Expect a lot of volume to trade near $39-$40 a share, but also be prepared for bargain hunters to start positions under $38 as an entry. Infosys doesn't have debt (relative to the cash on hand) and the price-to-earnings multiple is not out of line for the growth rate and well under 15.
If you are looking for Thursday's drop to signal a buying opportunity, you may find early Friday or next week to offer the best opportunity. There is no hurry jumping on board with Infosys. Stocks dumped as a result of poor guidance outlooks like this one take time for sellers to rotate out of and buyers to find value. Watch for the second break above $42 as the one that "sticks."
Two other very good choices to look at in the Software & Programming space are Microsoft(MSFT) and Oracle(ORCL) . Both companies are old school technology, but offer real value for investors seeking safety, growth, and dividend income.