As always, your response is well articulated, and I would agree with most of the points you made. My thoughts on where the market may be headed and how some individual stocks will perform over the short and intermediate term (In the long run, we are all dead, as Keynes once said)
I think volatility is here to stay, and we have not seen the last of the kinds of up and down moves that occured between Oct and Feb. The volatility is directly a function of information being disseminated very rapidly (sounds counter intuitive, dosen't it) and institutional investors trying to stay ahead of the game.
Earnings fears which caused the sharp declines in high techs will be realized (problems in S Asia are not imaginary, although it may seem that way based on how the market is shrugging it off); however the impact on most firms with exposures in that region will be slow and prolonged, mitigating the likelihood of sharp drops, but it will be a drag for the next 4 - 6 quarters.
Credit is extremely hard to come by in those regions, and the necesary capital investments needed to support the high growth rates of the past will NOT be made in the near future. Large multinational banks are being bailed out by the IMF (to maintain investor confidence), but industrial firms are not getting much out of these reform packages. So your hypothesis that earnings for US firms in general will be impacted, in my opinion, will be realized. The kinds of shortfalls that the large stock declines of last year were implying was (as most of us predicted) an over-reaction.
Strong US and Europe growth should offset the earnings declines from Asis for well diversified firms. Howver, I wouldn't consider the semi-equipment manufacturers as well diversified due to which they are bearing the brunt of the slowdown. AMAT is an excellent compnay, and I hold some shares ( which I bought in the low 30s). Objectively, it is the high market valuations (and aggressive bargain hunting by small investors) that is keeping the stock from trading in the low to high 20s where it should based on fundamentals With a long term horizon, I would be a buyer again in the low 30s again.
I recently bought some INTC at 75 (at my wife's insistence), but do not feel very confortable holding it at these levels. You are right, what provides at floor for these premium names are supposedly bargain hunters. The weak performance of INTC in such a strong market does not bode well for the semi- stocks in general
SUNW is a different story for me. It would be an understatement if I did not admit that its recent performance has not been disappointing. However, none of the reasons (fundamentals /strategy /execution) that I invested in the Co. has changed. So it does not meet my criteria for selling the stock. The stock does have very poor market perception (exacerbated by the top managment's continuous MSFT bashing - justified may be, but certainly not smart from the Street's standpoint) but they have great products and strategy and dominate the market segments it competes in (you have yourself outlined the fundamentals of the company very well in the past, so there is no point preaching to you). Sooner or later valuations are bound to catch up, with some hiccups along the way, I may add. Mid 30s, a distinct possibility, not impossible. Ironically, my puts on SUNW have made me a lot more money recently than the stock iteself. So to some extent I have my bets hedged.
For this quarter, I think 60 cents is achievable since the expenses are back end loaded and there is some flexibility to manage it down.
I wouldn't sweat it out if they missed by a penny or two (based on the EPS revisions).
Regards
Alok
|
