Nortel... the TSE Stock Wonder
Last Oct. friend of mine asked me whether I would buy Nortel after the big drop. Said I still hold sad memories on buying a stock after a deep one day plunge, more so, a high multiple stock. So, no, I'll pass.
Couple of months past, and news steadily whiffed out about a slow down of telecom capital expenditures. Even heard rumours that Nortel's CEO was passing out discount coupons as incentive for suppliers to buy in time for the fourth quarter. Roth himself, was busy reassuring analysts and others that Nortel would meet expectations for Q4. Mmmm... I thought, the man's trying too hard.
Mid January, Nortel announced Q4 results, and in pure accounting precision, the numbers met expectation. Looking ahead, Roth said that the outlook was still great, albeit, earnings growth expectation of around 30%. My friend figured it's time to buy, since at Cdn$50 the stock has "hit bottom", and besides, Nortel is the Canadian stock wonder. I didn't feel it right to say to her that the signs were all around of telecom capex slowing down, that Nortel still had a high multiple, and that the stock would be plummeled should Q1 be disappointing.
Today's news from Nortel will have people gasp with amazement how business visibility can change from a profit position into a loss within a month. Yep, the business climate nowadays change as fast as technology, and Roth only knows now what he didn't know a month ago.
If someone were to tell me that CEOs never play games in managing investors' perception, I have a nice, sunny piece of land in Florida for sale, and don't mind the alligators, they're very friendly. Seasoned investors know that any CEO's words should only be gulped with a healthy dose of salt. Too bad, my friend believed that Nortel won't be affected by the capex slowdown.
The good news is, she is a buy and hold investor. The bad news is, credibility was lost today with the Canuck stock wonder. It may take a year to wait for the capex revival, and then some to regain the halo.
If she were to ask me whether I would buy Celestica (wow! saw the record profits?) I would say... well, Cisco is slowing, Nortel is slowing, capex is slowing, its a low margin business, volume is important, and it still has a high multiple that can shrink fast on any sniffle of a slow quarter.
Canadian investors won't be happy waking up tomorrow and be surprised with the TSE opening 300 points lower. |
