Excerpt: Top Stories: Networkers Gain, but Cisco May Be the Only Sure Bet
By Kevin Petrie
Staff Reporter
12/30/97 7:09 PM ET
Networking stocks wafted higher amidst sleepy trading on
Tuesday, but only Cisco may be having sweet dreams.
Cisco (CSCO:Nasdaq) added 7/16 to end at 56 3/8; Ascend
(ASND:Nasdaq) gained 3/8 to 24 and 3Com
(COMS:Nasdaq) lifted 1 1/2 to 35 7/8.
Despite the gains, the economic shadows creeping across
the Pacific still have plenty of people worried about the
sector's prospects. Which makes the leader Cisco look like
the surest bet in the sector.
One money manager, who asked not to be named, notes
that investors seem to have eased on their tax-minded
selling. Earlier this month investors were scurrying to pull
out of money-losing investments and lock in a loss for the
year, in order to offset capital gains they made elsewhere
and reduce their net 1997 tax bill.
It's not hard to spot the candidates for this practice. Ascend
stock has descended 62% this year; 3Com is down 53.1%.
Investors bashed the stocks when they spotted pockets of
slowing growth in the networking equipment market. The
research firm In-Stat released a sobering estimate earlier
this month: The industry's overall rate of revenue growth
slackened from 48% in 1996 to 16% in 1997.
.....
By contrast, the titanic Cisco, which gained market share
this year, has pleased its shareholders and mustered an
index-topping 32% gain. A 7% stumble since its all-time
high of 60 7/24 (split-adjusted) hasn't diminished Cisco's
performance too much.
In part, Cisco benefits from a simple phenomenon: Wall
Street lavishes disproportionate rewards on the technology
leaders. A recent J.P. Morgan report paints a simple
picture: In late November, Cisco generated 31% of the
industry's revenue in the trailing 12 months -- more than any
rival -- and constituted 53% of the total market capitalization.
And if an economic or technology downturn is on the way,
Cisco may present the least risky investment. Arden
Armstrong, managing director at Miller, Anderson &
Sherrerd, is bracing for that scenario.
.... In this sector she likes only the
player with the most-reliable track records -- namely, Cisco.
"What you really want is a company that is not going to
miss its numbers," Armstrong says. On "faith," she has
bought Cisco, which has matched or beat First Call
expectations for seven quarters. Other networkers have
disappointed.
And some, such as Ascend, Armstrong says, may not be
able to recover from the turns of another type of cycle -- a
technology cycle...... Despite Monday's gains, most investors still believe that it's
hunker-down time in networkerville. |
