Lots of companies reporting badly after the market close today or just warning about not meeting future earnings: MU, MUEI, DAVE, SLR, OLDB, OSU, SLAM.
Here's an interesting article from Money Magazine about today's market. Note that featured in the columm are quotes from Heiko Theime, manager of the worst performing mutual fund in it's class for two straight years-American Heritage and then moving up to the best in its class.
For an enhanced HTML version of the Money Daily,
visit moneydaily.com.
Monday, December 15, 1997
Despite a strong day for the Dow, tech stocks can't
muster a recovery
No surprise: Some analysts see good buys among the
wreckage
by Michael Brush
How low can they go? Investors accustomed to the
buoyant performance of technology stocks during the
past three years were looking over the edge of the
cliff Monday and nervously asking that question.
After a stint of bad days last week, some observers
thought the weekend might have given the markets time
to regroup and start the week on an up note.
Not a chance.
Within hours of opening, Nasdaq was off 20 points, as
many tech stocks were down to levels that made them
look like the proverbial "screaming buy." Were they?
Without a doubt, say many prominent technology fund
managers.
"If someone takes a 12-to-18 month view, this
correction is a present from heaven," says Heiko
Thieme, the portfolio manager at the American
Heritage Fund, one of the top performing names for
the year. "But at the moment it looks like a present
from hell."
Thieme likened the current sell off to the one that
occurred in July 1996. "People will be asking
themselves at some in the future, 'How could we have
missed this buying opportunity?'"
Yes, certain parts of the tech sector are having some
serious fundamental problems. There is overcapacity
and pricing pressure in the disk drive area. The chip
sector seems to be moving into a cyclical downturn,
which will also hurt the semiconductor equipment
makers.
But the brutal sell-off in the tech sector goes way
beyond anything that can be explained by rational
analysis, several portfolio managers in the sector
say. Sales of personal computers and networking
products remain strong, they point out. Companies
will continue to demand many tech products so they
can keep improving their efficiency. And, they add,
fears about the impact of a global economic slowdown
on tech stocks have been overblown.
If that's the case, why haven't tech stocks bounced
back? The portfolio managers offer the following
reasons.
* Asian Exaggeration Managers at companies -- not
just investors -- have decided to err on the side of
caution when it comes to Asia's economic woes.
They're afraid of a slowdown that would create an
inventory buildup, so orders to suppliers, in many
cases, have dried up. "Almost everyone has a customer
tied to Asia in some way. So people selling end
products said 'I don't know what is going to happen,
so I'm not going to order any parts,'" explains Curt
Rohrman, portfolio manager of the USAA Science and
Technology Fund and the First Start Growth Fund.
These managers are reducing their inventories
sharply, and that has fed back through the
distribution channels. Once they are reassured that
demand for tech products is still strong, and that
the effect of Southeast Asia on tech companies is
overblown in many cases, these firms will rebuild
their inventories.
That will make orders -- not to mention many of the
tech stocks -- snap back, says Rohrman. "None of the
numbers I have seen tied to Asia say we are going to
come to a complete stop, which is what investors are
discounting for here." At the same time, the Asian
downturn has helped initiate a cutback in capacity in
the disk drive and semiconductor sectors, which is
healthy. He thinks the tech sector will turn around
by the beginning of 1998.
* The Momentum Stampede Almost by definition, many
tech issues are high growth and high price-earnings
ratio stocks. That makes them extremely vulnerable to
mood swings. "It is a sentiment thing with this
group," says Marc Klee, the manager of John Hancock's
Global Technology Fund.
"You can't buy 'em fast enough when they are going
up. You can't sell 'em fast enough when they are
going down. This is a fact of life. You learn to deal
with it. It is not a lot of fun. That is why I
suspect most of us who invest in these stocks are
manic depressives. Right now we are going through a
melt down. But we have melt-ups, too."
Klee says there are plenty of good values to be had
right now. He does not expect the sector to bounce
right back, because too many investors have been
bruised too badly to pile back in quickly. But it
should firm up early next year, he believes.
* The Oracle Effect The Wall Street analyst
community took a lot of heat from professional
investors for missing the big earnings shortfall
announced by Oracle recently. To be on the safe side
-- and because they are not sure what impact
Southeast Asia will have -- those analysts are now
rampantly cutting estimates on tech stocks.
"When Oracle disappointed, the Wall Street analysts
were clueless about earnings," says Louis Navellier,
of Navellier Securities. "Ever since, they have been
slicing and dicing earnings estimates because it has
been hard to get a handle on the Asian situation."
Ironically, points out Navellier, many firms will
actually benefit from the Asian problems since they
can now get parts much cheaper because of the
currency devaluations. "When earnings come out in
January it will become increasingly clear who is
getting hurt and who isn't."
* Liquidity Problems Yes, as Klee points out,
liquidity dries up when too many players are moving
out of a sector at the same time. But many tech
stocks are less liquid these days for another reason.
Ever since the Department of Justice leaned on Nasdaq
to narrow spreads for the retail investors, making
markets has been less profitable for the securities
houses. Result: many market makers have simply
abandoned stocks. That means when momentum investors
dump a big position, like they are now, there are
fewer market makers on hand to take up the slack, and
prices plummet.
Since the portfolio mangers we talked to are bullish
long term, we asked what stocks look likely to come
back strong. Here's a rundown.
American Heritage Fund's Thieme believes Seagate
Technology (NYSE: SEG) and Micron Technology (NYSE:
MU) will be up 50% to 100% within the next twelve to
18 months. He also likes Applied Materials (NASDAQ:
AMAT) and Compaq (NYSE: CPQ). "We would recommend a
bouquet approach. Go across the board. Pick five or
ten names. Don't move all your money in right now,
but just part of it. Then add to your position after
another 10% decline."
USAA Science and Technology Fund's Rohrman believes
continued demand for more bandwidth supports
networking stocks like Cisco Systems (NASDAQ: CSCO),
3Com (NASDAQ: COMS) and Lucent Technology (NYSE: LU).
"They are starting to give these stocks away." He
also thinks solid end market demand for products
containing analog devices will support stocks like
Analog Devices (NYSE: ADI), Linear Technology
(NASDAQ: LLTC) and Maxim Integrated Products (NASDAQ:
MXIM).
Despite the sell-off, Navellier thinks tech stocks
are still too risky. Instead, he thinks Airborne
Freight (NYSE: ABI) and Herman Miller (NASDAQ: MLHR),
his top two holdings, are good buys at current
prices. For the aggressive tech investor, he
recommends Smart Modular Technologies (NASDAQ: SMOD)
and Jabil Circuit (NASDAQ: JBIL), even if he is not
currently buying them.
Klee, of John Hancock's Global Technology Fund, likes
Parametric Technology (NASDAQ: PMTC), which makes
engineering software. He also likes Credence Systems
(NASDAQ: CMOS), which makes testing equipment for the
semiconductor sector.
Even if portfolio managers generally remain
optimistic about tech stocks long-term, they warn
that you can expect more volatility ahead, and not
only because investors will remain skittish and wary.
Year-end tax loss selling in the next two weeks could
bring some issues down even more, or at least keep
them where they are.
In the news...
Street Life
Blue Chips Up, Techs Down
by Andrew Serwer, Senior writer at Fortune Magazine
serwer@pathfinder.com
It was a tale of two markets on Monday. The Dow
climbed 84 points, to 7922. While NASDAQ fell less
than a point, to 1536. Blue chips, especially airlines
and banks, were strong, while techs continued to be
hurt by Asian worries. Here's what we're following:
CISCO.... So this bad boy bounced back today, up
almost a point, to $77.50, after some early weakness.
Stock got killed on Friday, down $6, or 7% when "el
networko supremo" said it was building up inventory.
(Omigawd: LIFEBOATS!!! LIFEBOATS!!!) Hey, lily-
livereds, this was a positive move! CSCO was building
inventory for a big push into small business. You sold
the stock? You should be ashamed!
MERGER MONDAY (again).... Same old story. Over the
weekend, the big guys like to play golf and stir their
cauldrons. Then they announce their deals to open the
week. Today we had a bunch of 'em: U.S. Bancorp buys
Piper Jaffray (another indie broker bites the dust);
Bessie Steel buys Lukens (would have been big news 25
years ago!); Irish drug maker Elan is buying Sano;
Physician Sales & Service buys Gulf South Medical
(huh?); and electronics maker Kollmorgen made a
hostile bid for Pacific Scientific. I happen to have
in my possession, the letter from
Kollmorgen's CEO to Pacific's CEO Lester Hill. It
begins, "Dear Buck." Now stop right there. I'm sorry,
if you are doing a hostile takeover of another
company, you don't start off with "Dear Buck."
BONDS.... I usually don't write about 'em, because
they make me snooze, just like they make you snooze!
(Bonds = Boring.) But I'll tell you this, amigos, all
of us wish we loaded up on Treasuries earlier this
summer. Long bond is down from 7.1% in August, to
5.93%. That's a 16% drop!!!! What's happening is that
with Asia scaring the pant's off investors around the
globe, everybody is fleeing into U.S. Treasuries,
driving prices up and pushing yields down. And nobody
gives a rat's posterior about inflation anymore, so
they're all buying long bonds. Rates could go lower,
but who knows really? So what are you supposed
to do? One word: REFINANCE!!!! (Everything!)
LOSER OF THE DAY.... It's DELL, down almost $5 to
$83.50. All PC stocks were down, but DELL the most.
Dan Niles of Robbie Stephens slapped this stock,
downgrading it and Compaq, etc. Watch it pull a
Douglas MacArthur.
Loose change: Hey, I hear Carl Icahn is getting back
into oil and gas!!!
Apparently Quick Carl just bought 15% of Seagull
Energy down in Houston. Batten down the hatches, boys.
You are in for some stormy weather!!! 'Member Icahn
was a player in Texaco and Marathon (USX). Guy is
smart as hell. Tough, and tough to deal with. A little
different too. I've spent some time with him, and he
kind of reminds me of Kramer from "Seinfeld".... So
Morgan Stanley likes this stock Guidant, which makes a
cardiac rhythm gizmo -- defibrillators (love that
word!). Listen guys, stock better have some juice
left. Guidant has ALREADY gone from $7
to $67 over the past four years!!! Has the train
already left the station on this one, or what? (Hey,
Morgan Stanley likes Time Warner too, so watch
out!!!).... Thank God Carolina beat Princeton (real
hoop prevails over jokeball).... That Denver/SF game
tonite could actually be worth watching! Rice is back,
and they're retiring Joe's jersey. Just isn't fair,
right Denver? Hey, the Broncs always have Elway
though. (I like Denver by the way!).... Wow! So
Nelson's AOL bash hit a hot button, huh? Seems like
MANY, MANY people do not like this company. It
succeeds in spite of itself.... Are the cheapest
online air tickets at farebusters.com? That's what I'm
hearing.... What's going on over
at Chase, by the way? Drums along the Hudson?.... And
today in 1890, Tatanka Iyotake died while resisting
arrest by Native American police. So let's have a
moment of hush hush for Sitting Bull.... Can you
believe Nick Buoniconti is 57 today???? |
