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Strategies & Market Trends : Making Money is Main Objective

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To: Softechie who started this subject	4/23/2001 10:56:53 AM
From: Softechie	Read Replies (1) of 2155

Merrill on Semis : The last couple of weeks has generated a real brouhaha among the chip analysts. Salomon Smith Barney analyst Jon Joseph recently upgraded the group on the assumption that the industry would trough over the next few months, and that the stocks typically rally in advance of a fundamental turnaround. However, Dan Niles of Lehman remains a bear and Mark Edelstone of Morgan Stanley recently lowered numbers on INTC as its Pentium 4 price cuts should become more aggressive. Today, Joe Osha of Merrill throws his hat into the ring by downgrading its intermediate-term ratings from Accumulate to Neutral for Applied Micro (AMCC 30), Intel (INTC 32.43), PMC-Sierra (PMCS 44.81) and Vitesse (VTSS 34.77). Osha believes that the 36% rally in the Semi Index (SOX 669.50) over the last 2 weeks has substantially increased the downside investors face between here and the fundamental bottom for the semi industry, which is still at least a quarter away. Also, valuation for the group is closer to trough than peak levels on a price/sales basis, but in aggregate chip stocks are now 51% off their trough levels using the 1996 and 1998 average as a benchmark. The picture on a p/e basis is more disconcerting -- on a p/e basis most of the group is actually closer to peak valuations than to trough. Osha expects to see a bottom to chip revenue growth at some point during the summer. There is a concern that the frantic rush to "be in front of it" is creating a situation in which investors have the potential to lose 40% between now and the real, fundamental bottom in the semi business...It's difficult to argue against a pull back in the semis given the 47% run in the SOX off its low on April 4. If you were fortunate enough to own these stocks over the past month, it's wise to take some money off the table as the path of least resistance is to the downside in the near term. -- Robert J. Reid, Briefing.com

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