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individualinvestor.com
by Jono Steinberg
Editor-in-Chief (10/30/99)
What a great way to end the month of October! The markets are taking off after Thursday's gross domestic product and employment cost index numbers -- reports that have been hanging over the market for the past two weeks. These numbers provided solid evidence that the U.S. economy is booming without inflation.
And let?s not forget Alan Greenspan. Last night in a speech to business executives in Boca Raton, Florida, Greenspan signaled that we are in the midst of 'a major acceleration in productivity' that can sustain our economic advance. He even hinted that interest rate increases earlier this year may contain economic growth. Translation: The Fed may not need to raise rates at its early-November policy meeting.
Not all stocks, however, have participated in the market rally over the past few days. In fact, many stocks are under significant selling pressure. Here's why: October marks the end of the fiscal year for many mutual funds. It's time for funds to sell their losing positions for tax purposes. This selling will cause declines in the share prices of some companies, creating some compelling buying opportunities.
Like this Article?
Why not take advantage of your timing? I examined some high profile companies that have recently been under pressure and selected a few that I believe have been excessively punished.
I expect these three companies to get a lift in November:
Unisys (NYSE: UIS - Quotes, News, Boards). This great turnaround story has recently given investors a real case of indigestion. The bloodbath for Unisys shareholders began October 14 when the computer-services company forecasted a temporary slowdown in revenue growth for the next two quarters. Unisys attributed the weak near-term outlook to Y2K spending cutbacks as well as to delays in filling large contracts. Shares, which were trading in the low $40s, have been sliced in half since the announcement. But when I look out over the course of next year, Unisys looks well-positioned. With consensus estimates calling for profits of $1.80 in fiscal 2000, shares are very cheap and hold strong recovery potential.
Compaq (NYSE: CPQ - Quotes, News, Boards). For Compaq and its shareholders, 1999 was a year to forget. The PC maker struggled with a bloated cost structure, difficulties in realizing synergies from its acquisition of Digital Equipment and the inability to define its role as a direct/indirect PC seller. On top of it all, Compaq lost its position as the largest PC vendor in the U.S. to Dell Computer (NASDAQ: DELL - Quotes, News, Boards). While Compaq has lost considerable momentum and has a long road ahead of it, recent initiatives to re-align its cost structure and attack new markets are promising. In its most recent quarter, Compaq was able to improve gross margins by 200 basis points and reduce operating expenses. Expect further reductions in costs. Expectations for Compaq are so low, that over the course of the next several months, I expect the company to surprise on the upside. With Compaq stock trading at the sub-$20 level, the dismal performance of the company is already factored into the share price.
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