Information for those who are still talking about S3 insider's selling:
Are you guys following market? Read this post:
To: Ski (603 )
From: Randy McWilliams Mar 26 1997 12:00AM EST
Reply #604 of 604
For a perspective on tech stocks in March and April see:
news.com
PC investments bouncing back big
March 25, 1997
Several technology sectors have fallen like cast-iron balls of late, but PC investments have recently started to get their bounce back.
But first, a look at data communication and Internet stocks, which started the year over-owned and overvalued.
Continuing weakness in Germany and Japan will cause some sequential weakness in these companies' quarterly earnings, which end in March. And while the year-over-year numbers still will be up, momentum investors who are only interested in quarter-by-quarter progress will be saying "sayonara."
<Picture>Signs of this phenomenon are already showing as share prices have been blasted: Cascade Communications fell from $90 to $28, 3Com from $80 to $34; even mighty Cisco dropped from $75 to $51.
I think we're starting to see glimmerings of value in this area and while I don't think transient weakness in Germany is much of an excuse to bring stocks down, this group deserved it.
Meanwhile, the personal computer stocks, where I have had most of my emphasis, have also come down.
But why?
After all, March obviously is a good quarter for PC sales. Many component companies are sold out for the June quarter--Intel, Read-Rite and Seagate among them.
<Picture>Price pressures are lower than normal, so profit margins generally will improve as revenues accelerate. And by the time March quarter earnings are reported at or just before the Hambrecht & Quist Technology Conference, April 28 through May 1, these stocks should be substantially higher.
According to friends at Ned Davis Research, the loss of price momentum has caused the technology sector to plunge to 21 on the company's list, with very negative readings for peripherals, software, semiconductors and computer services. But the stocks are so oversold that, like a coiled spring, a bounce is coming.
The folks at Ned Davis Research also wonder if the industry leaders can reach new heights and turn the sector around. To set new highs, Intel has to go up 14.7 percent, IBM 16.5 percent, Microsoft 5.2 percent and Cisco 43.6 percent.
I think the big bounce started last week.
Intel and Microsoft will see new highs, leading our PC investments up for the next several months. IBM still is bogged down by proprietary mainframes; Cisco will go higher, but not to the overvalued levels of January.
So our strategy for the next few months is to be invested primarily in PC stocks, stay a little margined, and start cherry picking the communications disasters.
Last month I said to look for a typical March: in like a lion, out like a lamb; the first half of March normally shows a strong upswing, but the second half is likely to be flat or drop back a little as investors worry about March quarter earnings. I did warn, however, that the best Marches follow weak Februarys, and this February was strong.
Sure enough, March came in like a lamb. But will it now go out like a lion?
The second half of March usually is weak, whether the first half was strong or weak. Companies with disappointing earnings already are preannouncing their results, putting pressure on stock prices. We probably have to wait for the good earnings reports in mid-April to power the next surge in technology stocks.
April almost always starts strong as investors fund retirement plans before the April 15th tax deadline.
April has been up 32 times and down 15 times in the last 47 years, and is the fifth-best month of the year. The best Aprils follow great Januarys, and this was a great January. In years when April was down, it rarely declined very much. I remain fully invested.
Michael Murphy is editor of the California Technology Stock Letter. He also manages the Murphy New World Technology Funds. You can reply to Murphy's column by email. Your letter may be excerpted and printed in a future Perspectives. Please state in the body of your message if you'd prefer that your name not be linked to your email address.
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