OT-KURLAK'S CLOUDY CRYSTAL BALL
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Kurlak's Cloudy Crystal Ball
ONE OF THE interesting sidelights coming out of Intel's stronger than
expected quarter is how Merrill Lynch's Thomas Kurlak fared through it
all. The semiconductor analyst, who is capable of moving the entire
sector with a single morning comment, had predicted that Intel would
earn 86 cents for its fourth quarter, the low on Wall Street. This
bearish prediction was in line with his forecast last fall that the
industry was due for an early 1998 downturn.
Of course, Kurlak's earnings number was way off the mark: Intel reported
a 98-cent-per-share fourth quarter. "He should say that he was wrong and
recommend them," says Michael Murphy of the California Technology Stock
Letter. Kurlak's scenario for Intel is that declining gross margins --
from 60% last year to 50% by the company's second quarter in 1998 --
will adversely affect the chip maker this year.
But Murphy argues that PC demand is as strong as it was last year and
Intel is shipping more products this year than last. "The company is now
trading at a 3% discount to the S&P 500 P/E of 21, and we see the stock
having a big reversal sometime soon," adds Murphy, who isn't concerned
that the stock is down 1 9/16, or 2%, to 75 7/16 Wednesday morning.
Murphy adds that investors need to be careful when listening to these
analysts because their motivations may be suspect. "Their firms want
them to make as many changes on these stocks to generate more trading
volume for the firm," he says. For example, it's better for Kurlak to
say, "Buy at 50, sell at 80 and buy at 65," then to tell investors to
"buy at 50 and hold the stock."
Since many of the chip makers are also down -- Micron (MU), down 1 9/16,
or 4.9%, and Analog Devices (ADI) fell 1 5/16 or 5% -- this morning,
Kurlak may yet be right on his 1998 outlook. But as this past Intel
quarter clearly shows, sometimes it's better not to pound the table
about something that you're not sure of.
-- By Eric Moskowitz
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