From Briefing.com: Updated: 20-Nov-02 General Commentary - Nasdaq extended its modest retreat off the recovery high in Tuesday's action amid some more light profit-taking. Selling was broad based with most industries posting losses. However, selling was orderly and well contained suggesting that there's still a little upside left in the rally.
How much additional upside is a good question. Technically, a closing break of the 1423 ceiling would position index for a run at the 1480-1500. At best that's 9.2% above current levels and 5.4% above the break out point. Nice gain, but nothing tremendous - especially given the risks.
What are the risks? Well, after Q3 earnings came in better than feared many investors started to (re)gain some optimism regarding the strength and timing of a full earnings recovery. However, Briefing.com maintains that investor optimism is unfounded, as one company after another is warning that IT budgets will remain restricted in the upcoming year. EMC was the most recent example of a big tech firm cautioning against a resurgence in IT spending. The stock dropped nearly 10% yesterday alone.
Soft economic data in recent weeks would also seem to argue against a major upturn in corporate profits/IT spending. Should the street be disappointed by the pace and timing of an earnings recovery - yet again - sector likely to go back on defensive.
And as we've seen over the past few years, stocks fall a lot faster than they climb. Consequently, it's understandable why buyers aren't lining up to gobble up tech shares when the upside is a relatively modest 5%-9%. Until earnings visibility improves, it's difficult to make a compelling case for buying tech (in general) at current levels.
Briefing.com is not arguing that the sector/market won't go higher from here, just that the risk/reward ratio doesn't favor going long at this point.
Robert Walberg
4:10PM Analog Devices matches estimates (ADI) 28.00 -0.40: Reports Q4 (Oct) earnings of $0.16 per share, in line with the Multex consensus of $0.16; revenues rose 7.7% year/year to $455.7 mln vs the $455.5 mln consensus; co is "planning for revenues, gross margins and operating margins to be approximately flat in the first quarter and pro forma diluted EPS to be approximately $0.16" -- Multex consensus estimate is for earnings of $0.18 per share.
3:26PM Benchmark Elec (BHE) 25.85 -1.21: Raymond James raises price target to $34 from $31 for this Srong Buy-rated techie; although visibility into Y03 remains dim, with firm's Y03 estimate of $1.54 only a couple pennies above annualized Q402 estimate of $1.52, even slight end-market progress in Y03 is likely to drive upside to current forecast; this is in stark contrast to most other tech companies, which will need at least modest end-market pick up in Y03 to just meet current estimates; as a result, firm thinks shares merit slightly higher valuation vs. peers. Shares are down 4.5% despite positive note. |
