Re: Sun's recent weakness
Certainly past is not guarantee of future, however to recap the situation prior to last quarter's earnings (not to mention practically every quarter prior to that!):
The stock price after hitting the high of $35 quickly went back to the mid 20's-$31 prior to the earnings report because of the following naive perceptions (in the order of importance):
1. Currency issues/concerns
2. NT's growth VS. that of UNIX
3. Insider selling (especially Mr. McNealy)
4. WinTel marketing/propaganda machine
And we all know what happened when the earnings came out (with stock jumping to the mid 40's to low 50's). And this was before the idea of thin client, server centric computing model to truly start to get ready for its take off in next December/February time frame.
Now all this weakness in SUNW's price seems the same to me again with minor differences:
1. I believe the demand for Sun's servers oversees has offset any negative currency impacs on the international revenues. A number of third world countires (in particular Middle East, South Africa, and Eastern Europe) that had already started to move their old legacy IBM mainframe infrastructures to the modern client-server architecture had placed huge orders for Sun's line of products (servers and in particular StartFire). Sun I believe at the time of last quarter earnings report said it had the highest backlog order in its history. And I do not see any change in this for the future either because of the rapid shift that corporate oversees is making to a more productive and therefore long term cust cutting standards (namely client-server, thin client architecture). Therefore I do not believe the currency problem should be an issue because of the huge demand.
2. WinTel marketing tactics on Sun has no longer any effect on the perception of investors (well lets say it does not have as much as it did before). Even with the new hype that has started with the so called ZAW!
Considering all that and in my opinion I continue to believe SUNW is a bargain at these prices, with a forward P/E of around 12-18 (based on whose figures you look at!), and being in the front line in one of the hottest markets (namely servers) which in my opinion from what I see to take place in the shift in the computing, will have an astronomical growth rate of 70-80% yearly. My order to buy additional shares at $46.5 was regretfully not executed today, but I have a strong feeling and I sincerely hope it is executed tomorrow! And I personally planning to buy more for every 5% drop after that as long as my available cash (and also my wife) allow me to do so!
By looking at the stock behavior pattern I think, though, prior to the earnings we will see SUNW perhaps as low as $42-$45/shr. However after the earnings (and again this is just my view), and based on the future outlook that the company will make public after the earnings announcement, the stock should quickly move to the low to mid 50's.
Regards,
Addi Jamshidi |
