Ridiculous sell-off in telcoms continues. Wish I had cash to buy them this cheaply. My beaten-down software stocks also getting hit today. It's a massacre. What buying ops but what a pisser.
U.S. telecoms seen set for rebound -analysts
By Jessica Hall
NEW YORK, Sept 19 (Reuters) - The downtrodden U.S. telecommunications stocks may be set for a rebound by year-end as investors look for bargains and
industry leaders such as AT&T Corp. and WorldCom Inc. turn to restructurings to boost their stock prices, analysts said.
"Investor sentiment is due for a positive swing given a momentum 'over-correction.' And fundamentally, we believe that this remains a growth industry, indeed one
with an accelerating, not decelerating, top line," Merrill Lynch analyst Adam Quinton said in a recent research report.
The telecom sector was one of the main casualties in April's technology stock implosion. Concerns about increasing competition and price wars in the long-distance
telephone market, as well as company-specific woes such as the collapse of the merger of WorldCom Inc. (NASDAQ: WCOM) and Sprint Corp. (NYSE: FON)
further trampled on the sector.
The Standard & Poor's North American Telecom Index has fallen more than 18 percent so far this year, while the Nasdaq telecom index has dropped nearly 29
percent. In comparison, the Dow Jones industrials average has fallen only 6.3 percent and Nasdaq has lost 6.9 percent so far this year. The Standard & Poors 500
has shed only 1.3 percent.
The telecom stock flop marks a sharp contrast to the group's blistering performance last year when the sector showed more than 50 percent gains on enthusiasm
about mergers, growth in data and Internet services, and international expansion.
"There hasn't been one specific thing (to spark the downfall). WorldCom/Sprint hasn't helped, downward guidance on revenues hasn't helped, especially since capex
(capital spending) is going up," said Donaldson Lufkin & Jenrette analyst Richard Klugman.
When regulators blocked WorldCom's planned purchase of Sprint, investors feared the golden days of telecom mega-mergers had ended. When the deal collapsed,
the mergers and acquisitions market "grew more hostile/confusing," Quinton said in the research report.
Also, "the voice long distance business got worse by the day; capital spending continued to climb well ahead of revenue growth; and there were simply too many
earnings disappointments for comfort across the group by both large cap and new entrants," Quinton said.
The telecom sector's decline, however, could be coming to an end, some analysts said.
"The group itself is getting oversold.... soon you're going to see a bottoming, a basing and a move to an upside by the later end of the year," said Joseph Barthel,
director of investment strategy at Fahnestock.
From a technical perspective, the telecom sector has been "locked in a base (trading range) since it broke down in April. It's now September and you typically don't
need more than six to nine months for a tech stock to reassert themselves," Barthel said.
In the next few weeks, there will be "nothing more than short-term trading opportunities. A sustained advanced may take several more months to achieve," Barthel
said.
Market strategists said the telecom group could see a pop by year-end as investors who have flocked to rising stocks such as biotechs, large technology bellwethers
such as Cisco Systems Inc. (NASDAQ: CSCO), and some small capitalization companies, begin to cash out and search for bargains.
Individual corporate developments also could turn the spotlight back on the telephone group and jump-start investor enthusiasm, analysts said.
Long-distance telephone giants AT&T Corp. (NYSE: T) and WorldCom, for example, are mulling various restructuring options, such as jettisoning their consumer
businesses, in an effort to boost their flagging stock prices. Neither company has made a decision yet.
AT&T also has been in talks with British Telecommunications Plc about combining their business and wireless units, and it has considered buying U.S. wireless
company Nextel Communications Inc.(NASDAQ: NXTL), sources familiar with the talks said.
If these telecom market leaders launch major restructurings or jump-start growth in their operations, the entire sector could see renewed investor excitement, analysts
said.
Fahnestock's Barthel also said the telecom group may sway with the health of international markets.
"A lot of telecoms' value is built on the hopes of international expansion. Their fate goes hand-in-hand with the health of emerging markets and Europe," Bartel said.
Over the long-term, telecom stocks should fare well as the companies reap more and more money from transmitting the exploding amount of traffic from the Internet
and as the wireless telephone industry continues to grow, analysts said. |
