BARRON'S of Oct.14/96
Hard to predict stock action for the next two days given the recent
turmoil in financial markets. Earnings should be announced after market close around 4:15 ET and on Monday, (Columbus Day) the bond market will be closed and wide open to swings and sell-and-buy programs.
1. On Friday, there was a short squeeze in S&P futures with premiums going to 5 points over fair value (4.65) only to collapse to under sell point at 3.95 in less than 10 minutes. My broker had no idea that the bond markets would close at 1:00 ET instead of regular 3:00 ET.
2. The chief strategist Abby Cohen of Goldman Sachs has an interview in this weekend's BARRONS re: 1997 markets. Her two favorites are Intel and Microsoft which she expects to grow at 30% annually vs. an earnings growth of 10% for the S&P as a whole. Compaq and Dell are also mentioned. This is on top of Morgan Stanley analyst's comments last Friday.
3. In the same issue, on page MW4, BARRON'S gives Salomon's analyst opposite opinion.
4. Both analysts at Goldman and Morgan Stanley are looking forward to an annual growth of 30% or so for the next two years. Motorola, in its recent disclosures expects the semiconductor markets to grow at an annual rate of 10-15%. Thus, I did some more digging and went directly to Intel's press release of September 1996 and Dataquest projected growth rates by region for the 1995-2000 period.
North/ Central America ....... 15%
Europe ....... 16%
Japan ....... 21%
Asia-Pacific ....... 25%
Rest of the World ....... 14%
T O T A L ....... 16% (down from 19% in 1996)
In Japan and APAC, 1995 PC sales were 3-4 times lower than Europe and North/ Central America (14.5 and 24.5 million units respectively).
Intel states in September 1996 that its revenues mirror the worldwide trends and increasingly, more revenues are projected to be derived from overseas markets (<<In the first half of 1996, 59% of Intel's revenues came from overseas markets, up quite dramatically from approx. 50% for the whole year in both 1994 and 1995.>>)
In conclusion, both Goldman and Morgan Stanley are calling for a growth rate of 30% or so versus the average of 15-18% Intel is projecting.
Moreover, as foreign sales increase, Intel is ever more exposed to foreign currency risk in spite of its hedging operations (no perfect hedge has been yet discovered.)
Also, political risk is increasing: both Japan and Western Europe will try to protect its semi-conductor industry, APAC is free-for-all and cutthroating competition with Taiwan and Korea (overseas Chinese community is very protective of its own interests). I don't think that the two above analysts have emphasized the foreign currency and political risks in their analysis.
Therefore, given both long-term outlook and increased unpredictability of overseas revenues, short-term asymmetries this week (Columbus Day, options expiration on Friday, Microsoft earning on 10/21) and recent run-up and volatility in the stock, I am on the fence.
Good luck, CA
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