Riverbed Technology (RVBD): The next Cisco?

By Timothy Lutts, Chief Investment Strategist and Editor of Cabot Stock of the Month
From Cabot Wealth Advisory 11/15/10 Sign up for free Cabot Wealth Advisory e-newsletter

As for the market, we’ve just had a great 10-week surge, in the big 2010-2011 bull market.

But now it’s time for a rest, what technicians call a correction.

The correction, according to fundamentalists, began when Cisco’s management said the future was not so rosy, and it accelerated when fears of a Chinese interest rate hike spread.  If you need such “news” to explain the decline, I understand.

But here’s my two cents.  

The market needed this correction.  It was too strong, too overheated.  It needed a bucket of cold water dumped on it.  And now it needs to inflict a little pain, most likely on the investors who bought most recently, near the recent top.

So it will.

But this correction, regardless of whether it runs two more days or six more weeks (my outside guess), is not the end of the bull market, and here’s why.

Bull markets top out slowly.  They’re characterized by divergences, and narrowing leadership, and we’ve seen none of that recently.

Furthermore, bull market tends to end quietly, with the market turning down while the official news is wonderful.

And that’s not the case today.

So I’m happy to see Cisco’s dour projections.  And I’m happy people are worried about Chinese interest rate hikes.

It tells me there’s more upside ahead, and not until I hear the “all is well” signal from the mainstream press will I truly start to worry.

So what to buy?

Well, how about the next Cisco?

I suggest Riverbed Technology (RVBD), a San Francisco company whose hardware/software packages improve the performance of a wide variety of applications over wide area networks.  Named Steelhead and Whitewater, these appliances optimize the performance of wide area networks.  They accelerate the performance of applications.  They optimize the use of bandwidth.  And they consolidate IT resources, so management gets more productivity for its investment.

And business today is booming!

In fact, revenue growth at the company has been accelerating in recent quarters, and if you’ve been reading my letters a while, you know this is one of my favorite metrics for a stock.

In the third quarter of last year, revenues grew 18% to $102 million
In the fourth quarter of last year, revenues grew 22% to $113 million
In the first quarter of this year, revenues grew 27% to $112 million
In the third quarter of this year, revenues grew 39% to $126 million
In the third quarter of this year, revenues grew 45% to $148 million

In that same quarter, after-tax profit margins were a robust 18.0%

And every time the company grows faster, analysts have to revise their estimates upward … which brings new buyers into the stock … which pushes the stock higher and higher.

Where it will end, I don’t know, but I do know the whole world is getting more wired every day, depending on big networks for information and entertainment.

And I know this company is a pipsqueak compared to tired old Cisco, so it has much more growth potential ahead.

So, you could simply buy the stock here, but I suggest that you first take a look at what Michael Cintolo is recommending.  Mike is the editor of Cabot Market Letter, which recommended the stock back at the end of July, when it was trading at 18 (split-adjusted).  It’s now 29, for a profit of 61% … in less than four months! Click here to learn more.

Riverbed Technology (RVBD): Business is Booming

By Timothy Lutts, Chief Investment Strategist and Editor of Cabot Stock of the Month
From Cabot Wealth Advisory 10/25/10 Sign up for free Cabot Wealth Advisory e-newsletter

Today I want to highlight another company demonstrating acceleration of revenue growth and acceleration of earnings growth. The reason I like these characteristics in a stock is that it tells me analysts have to keep ratcheting up their estimates, and thus their targets, and so institutional investors have to keep buying more. And it’s institutional investors that drive stock prices.

The company is Riverbed Technology (RVBD), and its business is booming today as companies all over the world work to make their Wide Area Networks (WANs) work faster.

Riverbed saw its stock gap up last week after an excellent earnings announcement.  

Just look as these numbers.

While analysts were expecting revenue of $135.3 million, the company pulled in $147.8 million!

And while analysts were expecting earnings of 27 cents a share, the company earned 34 cents!

Guess how fast those analysts are revising their estimates now, and how fast price targets are being raised, and how fast buying plans are being revised.

And it’s not the first time!

Just three months ago, after the company released a crackerjack second quarter earnings report—and the stock gapped up—Mike Cintolo added the stock to the Model Portfolio of Cabot Market Letter, writing, “The company’s Steelhead hardware and software are the best at WAN optimization. In a nutshell, that simply means that Steelhead makes a company’s network—which could span across a campus or a continent—much faster. And that allows not only higher productivity among workers, but also helps customers avoid the cost and time of constructing entirely new networks. Looking ahead, the importance of corporate networks (and thus, the demand for faster speeds) is only going to increase, especially as companies put more and more of their resources in far away data centers. Riverbed’s second quarter report was outstanding, causing the stock to gap out of a consolidation. And, impressively, it hasn’t given up any ground, even during the minor market pullback of the past couple of days. Shares could always drop a point or two, but we think buying here will work out over time.”

When Mike wrote that, the stock was trading at 36. Subscribers who followed his advice are looking at three-month profits of 56%, with the expectation of much more ahead.

To join them … and to be assured of getting the all-important profit taking sell signal on RVBD when the time comes, click here.

Tim LuttsTimothy Lutts

President, Chief Investment Strategist, Editor of Cabot Stock of the Month

Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.