Not all telecom/networking stocks are cut from the same cloth... Companies such as Qwest (Q), Extreme Networks (EXTR), Brocade (BRCD), Corning (GLW), Verizon (VZ), Nextel (NXTL), Juniper (JNPR), Ciena (CIEN) are going to emerge from the downturn in a solid shape...
Updated: 21-Jun-01
General Commentary
Unless you had pulled a Rip Van Winkle, you knew coming into warnings season that the sector was going to get roughed up... With the vast majority of pundits predicting an earnings trough in Q2 or Q3, it only made sense that the number of warnings would be uncomfortably high... Consequently, the market's retreat over the past few weeks shouldn't be a surprise... But for some reason that's exactly how many investors are reacting.
Yes, the scope of the declines in the networking/telecom groups has been a bit alarming - but there was plenty of evidence out there suggesting trouble ahead... Right now the selling in these groups has become very emotional, which is another way of saying irrational... Not all telecom/networking stocks are cut from the same cloth... Companies such as Qwest (Q), Extreme Networks (EXTR), Brocade (BRCD), Corning (GLW), Verizon (VZ), Nextel (NXTL), Juniper (JNPR), Ciena (CIEN) are going to emerge from the downturn in a solid shape...Don't expect miracle rallies overnight, but the recent bloodbath setting group up for at least a moderate trading rally once the news cycle shifts.
Returning to the general topic of warnings, investors need to weather about two more weeks of bad news... That may seem like a lot of time, but consider that a) traders are unlikely to sell aggressively into next week's FOMC meeting, b) investors are likely to cover shorts prior to the end of warnings season for fear that sector/market will stage another post-warnings season rally, and c) many of the warnings are already out, suggesting a diminishing impact for future confessions (unless of course they come from "sacred cows" such as MSFT or IBM)... In other words, the sector has probably made it through the worst of warnings season... Not to say there won't be a few more air pockets, but we can see the light at the end of the tunnel.
As long as the Nasdaq manages to hold above retracement supports over this period, and the indiex has showed impressive resilience to date, the sector will be well positioned to resume the recovery rally come early-, mid-July.
Robert Walberg |
