As discussed many times previously on this thread, and other threads as well, the period from last March to the Oct/Nov time frame was the "sweet spot" in terms of stock price appreciation, particularly for the semi-equips. Since Oct/Nov the pace of semi-equip gains have slowed, and since mid January of this year, have decreased considerably. Many "good reasons" have been put forth for this performance, but the following is to take note of one persistent voice from Briefing.com recommending to "lighten up" or "leave" the semi-equip sector. His name is Ping Yu and he first started "writing and analyzing" the Technical Take on 1 Oct 2003 when he took over Patrick O'Hare's spot in writing this column. He was introduced as follows:
Message 19357904
<<Separately, with the end of the third quarter comes the end of my time writing the general commentary for this page. Beginning Wednesday, October 1, Briefing.com will be introducing the newest member of our analytical team who will be covering the technology sector exclusively. His name is Ping Yu.
Mr. Yu joins us with a good deal of industry experience that encompasses positions as a Financial Control Analyst at the Bank of New York, a Sr. Budget Analyst in the New York City Mayor's Office of Management and Budget, an Assistant Portfolio Manager for Capital Formation Companies, and most recently, as an Associate Research Analyst at SG Cowen where he published Tech Radar, one of the most widely read and respected research dailies on Wall Street. Mr. Yu received his undergraduate degree from New York University and his MBA at Babson.-- Patrick J. O'Hare, Briefing.com>>
It didn't take Mr Yu long to begin his cautionary notes on over evaluation in the sector. From the 6 October review:
Message 19376952
<<Some names that we think valuations and pricing have outpaced fundamentals include:
Adtran Inc (ADTN, 74.96 -2.32): Trading at 7.4x Reuters Research consensus C03E sales of $391MM and 6.5x C04E sales of $445.6MM; 52.8x C03E EPS of $1.42 and 43.6x C04E EPS of $1.72.
Cisco Systems (CSCO, 20.80 +0.04): Trading at 7.1x Reuters Research consensus F04E sales of $20.3B and 6.4x F05E sales of $22.7B; 32.5x F04E EPS of $0.64 and 28.1x F05E EPS of $0.74.
EMC Corp (EMC, 13.65 +0.24): Trading at 5.0x Reuters Research consensus C03E sales of $6.0B and 4.3x C04E sales of $6.9B; 85.3x C03E EPS of $0.16 and 47.1x C04E EPS of $0.29.
Garmin Ltd (GRMN, 43.44 +0.10): Trading at 8.7x Reuters Research consensus C03E sales of $541.0MM and 7.6x C04E sales of $621.7MM; 26.0x C03E EPS of $1.62 and 23.6x C04E EPS of $1.84.
Juniper Networks (JNPR, 17.29 +0.66): Trading at 10.0x Reuters Research consensus C03E sales of $662.3MM and 8.8x C04E sales of $746.7MM; 157.2x C03E EPS of $0.11 and 101.7x C04E EPS of $0.17.
KLA Tencor (KLAC, 55.70 -0.28): Trading at 7.4x Reuters Research consensus F04E sales of $1.46B and 5.9x F05E sales of $1.84B; 54.1x F04E EPS of $1.03 and 30.1x F05E EPS of $1.85.
Linear Technology (LLTC, 39.27 -0.12): Trading at 16.6x Reuters Research consensus F04E sales of $739.2MM and 13.8x F05E sales of $893.1MM; 43.2x F04E EPS of $0.91 and 35.7x F05E EPS of $1.10.
New Focus (NUFO, 4.95 +0.11): No sales estimates available. Trading at 11.9x TTM sales of $26.6MM.--Ping Yu, Briefing.com>>
Another one is from Oct 13th:
Message 19397844
<<Optimism over a strong Q3 continues to buoy markets. Investors should take this opportunity to review holdings, assess valuations against company fundamentals and adjust portfolios, particularly in technology, where valuations often price in growth and margin expectations significantly above actuals as of the last reported quarter, thereby leaving little upside or margin for either a miss on top-line growth or operating improvements.--Ping Yu, Briefing.com>>
By the end of October, the caution remaned the same:
Message 19451330
<<Despite a modestly undervalued broader market, with tech valuations already pricing in double digit growth rates and margins expansion, there are few justifications for material gains across tech shares. In this context, the next few weeks is shaping up to be very much a traders' market, driven by technicals and relative value as investors sort through the fundamentals. It will be an interesting January effect indeed. Over the coming weeks, we'll identify both trading ideas as well as compelling investment opportunities.--Ping Yu, Briefing.com>>
From 10 December:
Message 19580211
<<We remain modestly bullish on tech over the long-term but concerns regarding valuation will continue to limit advances near-term. With growing fear of a rate increase and valuations already pricing in growth and margins expectations that far exceed actual performance (and for many companies, levels that are unsustainable over the long-term ), the direction of greatest resistance for tech is higher. We would continue to protect gains as opportunities permit.--Ping Yu, Briefing.com>>
From the 18 Dec report:
Message 19611815
<<After the close, the SEMI (Semiconductor Equipment & Materials International) trade group reported that for the second month in a row the book-to-bill ratio came in above 1.0. The November book-to-bill ratio of 1:04 indicates that $104 of new orders were received for every $100 of product billed for the month. As with the October book-to-bill which came in at 1.1 (General Commentary, Nov 19, 2003), the SEMI survey data confirms demand is improving for semiconductor capital equipment but the rate of increase is below what the market has already priced into equipment shares. As a result, do not expect equipment shares to trade up on this news. Intervoice (INTV 9.66 -0.09) printed Q3 results ahead of consensus. Management indicated sales backlog and long-term outlook continues to improve. Solectron (SLR 6.02) published Q1 results. Company is experiencing improving demand across a number of market segments. Management guided Q2 essentially in-line with consensus and reiterated commitment to returning to profitability by Q4.--Ping Yu, Briefing.com>>
From the 21 Jan report:
Message 19718251
<<We see tech shares continuing to be highly volatile near-term and would improve the quality of the portfolio by selling richly priced shares into strength.>>
From the 26 Jan report:
<<We have noted on the Tech Stocks page as well as in Story Stocks that many semiconductor capital equipment stocks, including NVLS, are priced for growth and margins that are unsustainable given industry outlook and dynamics. We would continue to swap out of the sector.>>
From the 9 Feb report:
Message 19787654
<<LLTC shares are down over 8% since the Q2 preview (Story Stocks, January 12, 2004), when we wrote that management will need to achieve revenue growth and operating margin expansion significantly above the industry average and recent performance for investors to justify owning shares. We continue to think this will be difficult to sustain over the long-term even with market share gains given current end market growth expectations. Shares are still priced at a high premium despite the pull-back. We would wait for an additional 25-30% pullback before initiating a minor position, and consider Analog Devices (ADI 48.09 +0.05) as an alternate play.--Ping Yu, Briefing.com>>
And finally, from last Wednesday's report:
Message 19849394
<<After the close, Novellus Systems (NVLS 32.83 -0.64) raised Q1 guidance during its mid-quarter update. Management sees EPS of $0.08-0.10 with a bias to the high end. Revenue is expected to come in at $245-255MM vs. prior guidance of $240-250MM. Reuters Research consensus is at $0.09 on $248.84MM.
NVLS shares are down over 26% since November 25, 2003 when we wrote that there is no justifiable upside even if NVLS grew revenue at 30% because the market is already pricing into NVLS shares sustained 30%+ revenue growth and factoring in over 2500 bps in gross and operating margin improvement. Additionally, most semiconductor capital equipment companies are priced for 30% plus growth but semiconductor industry capital expenditures are expected to grow below this rate in 2004 and contract by 2006. There is limited upside even with the decline. We would continue to trade out of the semiconductor capital equipment group.--Ping Yu, Briefing.com>>
With sentiments like that - consistently stated over and over again over the past several months - and Briefing.com being quite widely read in the "market" community - upward movement in the semi-equip group is going to be hard to come by.
Many, many, thanks to RtS who posts this Briefing.com data on a daily basis on this thread. When a little "research" is needed, these posts are invaluable - thanks RtS.
Don |
