Tech Fans Promise Autumn Rebound
By TSC Staff
7/29/99 9:29 PM ET
Just like New York Knicks fans who cried "wait till next year" after the NBA finals, fans of technology stocks are
promising a rebound in the fourth quarter.
In the past two weeks, all but a few technology stocks have fallen from their lofty levels. Only the semiconductor
companies held firm against the onslaught, but even they couldn't stem the tide by themselves for long.
On Thursday the Nasdaq Composite Index fell 65.83, or 2.4%, to 2640.01, but in the past two weeks the
technology-heavy index has fallen some 8% from its all-time high of 2864.48. And the Philadelphia
Semiconductor Index dropped 17.07, or 3.4%, to 492.64.
With certain nonchalance, fund managers and tech analysts are pointing to Hamptons excursions and the ogre
named Alan Greenspan as excuses. Judging by the latest evidence, the U.S. economy isn't slowing down and
the market has become jittery about the next action by the Federal Reserve chairman.
Chris Greer, head of Internet and e-commerce M&A for BancBoston Robertson Stephens, also blames
daytraders cashing in on gains and a "natural shortfall and breather" that takes place after each quarterly cycle of
earnings announcements. Add in the exodus of buy-siders to summer vacation spots, and you've got stock
doldrums and an annual drought of IPOs. "Typically people see a rebound in the fall," Greer says. "It's a cycle
that most people in the industry expect."
Alexander Cheung, portfolio manager of the Monument Internet Fund, is shocked people would be surprised by a
tech stock downturn, since it happens every summer. Last year, for example, the Nasdaq dropped 20% in
August. "The only question is to what extent, and on what day," Cheung says. "If people don't anticipate it, I don't
know what they're thinking about," he says.
Ironically, the downturn comes, Cheung says, just when earnings reports from most Internet companies -- ranging
from America Online (AOL:NYSE) to privately held operations -- are looking good. AOL's 13 cents-a-share profit
beat estimates by two cents in the second quarter. "Business is just barn-burning," Cheung says.
Software companies, meanwhile, probably won't participate in any autumn rebound because customers, still
agonizing over Y2K-related concerns, will have no interest in installing programs before January 2000. "Software
companies are facing a complete freeze," Greer says. "The software industry, I think, is going to have a lot of
issues between now and year end."
That goes as well for the seemingly unstoppable Microsoft (MSFT:Nasdaq). Just two weeks ago, buoyed by a
courtroom victory against a rival software maker, Microsoft boasted a market capitalization of $500 billion as its
stock price reached an all-time high of 100 3/4. It has since slipped 14% to 86 15/16 as of Thursday's close.
But if the July heat has proven too much for Microsoft, Oracle (ORCL:Nasdaq) has blossomed. AMR Research
analyst Bruce Richardson says Oracle could be a "very pleasant" surprise in the second half of this year as the
company focuses more on the Internet. That strategy could send the stock as high as 100 by year end. Oracle
finished Thursday up 3/8 to 38 1/16.
Networkers Hold Up
The promise also remains bright for the companies that help build the Internet. Although the big names among
data networkers have retreated recently, it's tough to call it a rout. Cisco (CSCO:Nasdaq) eased 1 9/16 to 61 3/4
Thursday on its typically-heavy volume of 1.4 million shares; Lucent (LU:NYSE) slipped 1 1/2 to 65 3/8 on 8
million shares and Nortel (NT:NYSE) was off 1 1/16 to 88 5/16. All three stocks are up more than 20%
year-to-date, compared with a 12% rise for the Nasdaq.
The fiber-optic suppliers were particularly strong: JDS Uniphase (JDSU:Nasdaq) traded down 1 or at 87, but it
had jumped 6.5% to 88 Wednesday and has still added 154% for the year.
"On the fiber-optic side of things, people are holding onto their shares," says assistant portfolio manager Wendy
Snow with the hedge fund Lamoreaux Partners, a holder of JDS Uniphase. With a long backlog of orders for the
optical components, Snow is keeping a tight grip on the stock.
At the BancBoston Robertson Stephens semiconductor conference in San Francisco, the market's weakness is
good news for chip investors, according to money managers scouting for bargains. "I'm looking for opportunities to
keep adding," said James Renck, chief investment officer of Renck Capital Management. "We've had some big
runs so people are nervous."
At last year's conference, money managers sulked over the little near-term promise in the chip sector. This time
around, they are almost prancing thanks to the returns on their investments in chip stocks since the sector
bottomed last October. Renck, for example, started his technology fund Oct. 1 and has seen 140% return.
Ken McCain, a portfolio manager at Wall Street Associates, also was optimistic about chipmakers. "Last year
was a down year when people weren't investing," McCain says. "Now people are worried that they might not have
enough inventory so they are building up and you also have a seasonal pickup of PCs."
Another manager, Jim Chen, analyst at Roger Engemann & Associates is looking for the market to head lower
even further so he can pick up chip stocks at a better bargain. All the signs, he says, are good for the sector to
rise. "I'm sure PC-related stocks will be strong. Pickup in orders is occurring several weeks ahead of expectations
that leads to believe there won't be much of a softness this summer."
|
