JDSU vs AMAT:
JDSU is bottoming at roughly the same valuation that AMAT bottomed at in December and again in April:
Price/Sales of 3 and stock price falling to roughly 1/2 of peak quarterly earnings (JDSU's recent price of 10 is a little less than 1/2 of its peak quarterly earnings of 21 cents and AMAT's low in the mid 30's was similarly a little less than 1/2 of its peak earnings of 77 cents.) Price/Book is difficult comparison since JDSU's book value of 47 is inflated by the SDLI merger, I believe. However, they both bottomed at roughly the same Price/cash of around 6.5.
So, if AMAT could bounce off these valuations it seems reasonable to expect the same for JDSU. Of course somebody might argue that business is worse for JDSU than it is for AMAT but given the data from tonight's book- to-bill it is hard to believe it could be much worse. Finally, one could argue that a price/sales of 3 is still too high for both stocks.
If we are not at the bottom we must be close if only because there is such a clear consensus among analysts that tech is headed lower. You cannot listen to CNBC for more than 5 minutes without hearing an analyst deriding tech stocks. The mirror image of what you heard 15 months ago. Actually, JDSU is almost a poster child for CNBC's perception of the technology sector: everybody loving it a year or two ago and slowly over the last year becoming more and more criticized until it became something of an inside joke amongst the CNBC commentators: during their viewer "Buy, Sell, or Hold" call in segments they would laugh about how almost without fail some caller would ask whether to buy or sell JDSU ("Tomorrow we will have so and so from Merril to answer your question about JDSU").
The technology bear market will either bottom when the analysts are the most negative on the sector or when they forget about the sector. Analysts today cannot make their recommendations without warning against technology (sometimes giving a token thumbs up on MSFT or IBM). In a few months, I predict they will start recommending stocks without even mentioning the technology sector--when that becomes commonplace, I would feel very comfortable with my tech holdings.
I remember advise from the author of the aptly named Turnaround newsletter that looked at buying companies valued at close-to-bankrupcy prices hoping for a turnaround: He would watch for stocks to bottom over a year's time and then wait a little longer before buying. His impression was that it took a good year for most people to hate a stock, but a bit longer for everyone to forget about it and it wasn't until everyone forgot about it that you could get the best price. In a similar vein, it has taken about a year for everyone to hate technology (except, I guess, the few of us die-hards typing on Silicon Investor message boards) and may take a few more months for everyone to forget about technology. By that time, the viewer call-ins to CNBC will only be asking about Caterpillar and Noble Drilling and not a peep about JDSU. |
