WSJ(1/10): Heard On The Street: Traders Like Qualcomm Twins
By Susan Pulliam
Staff Reporter of The Wall Street Journal
Here come the Qualcomm tag-alongs.
During the past several weeks, day traders have been scanning the
message boards and stock Web sites looking for wireless technology
stocks that could benefit from Wall Street's torrid love affair with
Qualcomm. After getting battered for much of last week, the
telecommunications darling was up $9.9375 to $150 at 4 p.m. Friday on
the Nasdaq Stock Market.
So, where have day traders turned their sights? Interdigital
Communications, which nearly quadrupled between Dec. 28 and Dec. 30
when it hit $82. Sawtek, another favorite Qualcomm wanna-be of day
traders, has jumped from $41.25 Dec. 1 to $62.3125 on the Nasdaq,
although it is down from its high of $73.75 a week ago.
It isn't the first time day traders have tried to take advantage of
the back draft of a stock that has caught fire. Who can forget the
craze to own Linux stocks after the hypersuccessful initial public
offerings of Red Hat, Andover.Net and VA Linux Systems? Those IPOs
caused a rush by day traders into smaller, less well-known stocks
viewed as Linux plays, including Corel, Perle Systems, Track Data,
BitWise Designs and Bitstream.
Then there was the scramble to own Pokemon stocks. This sent 4 Kids
Entertainment, the initial big Pokemon play, into orbit as it rocketed
to more than $90 in November from $30 at the end of September. The
rush touched off a short-lived spike generated by day traders in Grand
Toys, which jumped to $30 from $7 within days in late summer.
Through it all has been a role reversal taking shape at times
between big investors and day traders. Not long ago, institutional
investors uniformly scoffed at the stocks being chased by day traders.
These days, however, they increasingly are likely to jump on board a
stock being favored by these frenetic individual investors rather than
risk being left behind on another Internet stock's rapid ascent. They
aren't waiting for stocks to become an Amazon.com or a Yahoo! before
they begin to nibble.
Is the tail wagging the dog? "There is no question in the current
environment day traders are having a significant impact in day-to-day
price movements. To the extent that there is some room for hedge funds
to follow along in that, why not?" says Henry Blodget, Merrill Lynch's
Internet analyst.
It is all part of the trend among big investors to join the
"momentum" party. The development also shows how profoundly the
growing legion of day traders is influencing behavior in the broader
market.
The stock of one Qualcomm tag-along, Conductus, exploded last week.
The Sunnyvale, Calif., maker of superconductors that improve the
performance of wireless networks reached a high of $13 from around $7
Dec. 22 after it put out a news release announcing it had received $15
million in equity financing from several venture-capital firms.
"We've been on the phone with investors the last few weeks a lot,"
says Ron Wilderrink, chief financial officer of Conductus. That is
quite a change from one year ago, he says. "Our stock wasn't on
anyone's radar while we were in the $2 to $3 range," he says.
Then there is tiny Illinois Superconductor, which, similar to
Conductus, makes superconductors used for filtering purposes on
wireless networks. It is also a favorite on the message boards but has
drawn an early investment from Elliott Associates, a New York hedge
fund. Says Mark Brodsky, portfolio manager at Elliott: "We expect this
technology to be important to the wireless upgrade in Japan and for
solving capacity limitations in wireless communications."
Some specialists say day traders' role as scouts when it comes to
finding new Internet-stock plays may be beneficial. "It helps the
market's efficiency," says Michael Mauboussin, strategist with Credit
Suisse First Boston. "As a result of television and chat rooms, the
way information is being shared is unprecedented," he says. "So when
there is a ripple there are a lot of tools investors can now use to
determine who might benefit."
That isn't to say it is a safe bet to pounce on every penny stock,
or small technology stock being chased by day traders. Far from it.
Grand Toys, for instance, the tertiary Pokeman stock being touted by
day traders, had a dramatic run-up followed by an equally dramatic
plunge, leaving it right back where it began its big climb last
summer. Corel, the Linux play, had a similar round trip, rising to a
high of $44.50 from about $15 at the end of November. At 4 p.m. Friday
on the Nasdaq, it was at $19.375.
"The market will eventually sort out where the value is," Mr.
Mauboussin says. "But, very often there is some logic to these
things." Corel, while giving back much of the gains it made during its
climb, is still way up from where it began last year, at around $2.
The Pokemon play 4 Kids is also up significantly from where it started
1999, at around $2. At 4 p.m. Friday on the Nasdaq, it was at $25.75.
In the case of the Qualcomm tagalongs, day traders might be on to
something, some analysts say. "What's happening is people are
realizing that wireless is going to be much bigger than anyone
expected. Qualcomm is getting much of the reward right now. But there
are many participants in that space," says Marc Cabi, who follows
Qualcomm at Credit Suisse First Boston.
Of course, it didn't hurt that Walter Piecyk, a PaineWebber Group
analyst, sent the stock soaring late last year, after initiating
coverage by setting a 12-month price target of $1,000 (now $250, after
a 4-1 stock split).
A few big changes in the wireless market also helped ignite
Qualcomm. It helped last year when wireless operators began showing
better-than-expected results, including Sprint (PCS Group) and SBC
Corp., the parent of Southwestern Bell. Also, Qualcomm in March said
it had settled a long-running patent dispute with Telefon AB L.M.
Ericsson, also agreeing as part of the settlement to sell its
infrastructure business to Ericsson, which had been a drag on
Qualcomm's earnings.
Wall Street cheered the news because it not only promised to help
Qualcomm's results, but also cleared the decks for further
proliferation of its technology, called code-division multiple access,
or CDMA. The timing couldn't have been better, either. At the same
time, CDMA technology was being used by more wireless operators in the
U.S, Japan was getting set to begin installing equipment this year for
what is called "third generation" CDMA. The technology will make
possible faster and more sophisticated communications such as surfing
the Net and sending e-mail via hand-held devices.
That is where the day traders' picks come in. Companies such as
Conductus and Illinois Superconductor make superconductors that help
filter out signals that otherwise degrade the quality of CDMA
transmissions. The filtering process is especially crucial, however,
when it comes to the third-generation technology that will begin to be
deployed this year in Japan. Interdigital, which also has attracted
some large block buying from institutions, holds patents for
next-generation communications and data-transfer technology for which
it receives license fees and royalties. Sawtek makes electronic
signal-processing parts related to third-generation wireless
technology.
"Sometimes the day traders pick up on things," Elliott's Mr. Brodsky
says. "This may be a situation where the day traders are a step
ahead."
(END) DOW JONES NEWS 01-09-00
11:03 PM
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