briefing.com on QNTM and other techs for March 25 says close your eyes and buy. briefing.com
>>Quantum Leap
Daily commentary updated for March 25, 1998
We are frequently asked in emails or feedback if a particular stock is a worthwhile investment. We politely decline to answer these, because the appropriateness of an investment does depend upon your personal situation, in addition to the characteristics of an investment.
One thousand shares of Quantum in a $600,000 portfolio is completely different than 1,000 shares of Quantum in a self-directed IRA that represents the only retirement funds of a 45 year old. Without knowing your situation, we simply can't say whether Quantum is a "good investment" right now.
Professional money managers don't have this problem. They have been given money with the instructions to invest it. They don't have to decide whether it was "right" for the investor or not. They are able to presume that that judgement has already been made.
With this point in mind, what can we say about Quantum yesterday?
On Monday, Quantum warned after the close that it would likely report no profit, instead of a $35 million profit ($0.25 per share) with a sequential 20% revenue decline, or $300 million less than the $1.52 billion they brought in last quarter.
Yesterday, Quantum shares rose 5/8, a 3% rise, to 21 1/8, on more than three times the daily volume.
In other words, the reaction to bad news was an extremely strong positive technical signal.
Now, keeping this in mind, along with our opening words, let's review what happened after the close on Tuesday (as this is being written.)
The following technology companies all issued earnings warnings or reported below expectations:
Stock Price, Tues. EPS Expectations EPS Warnings Comments
3COM COMS 37 3/16 0.14 0.02 Actual 14% revenue decline
Adept Technology ADTK 13 7/8 0.15 0.00 automation
Hypercom Corp. HYC 17 3/8 0.14 0.08 POS systems
FSI FSII 11 5/8 -0.10 -0.15 Actual 0.08 Actual a year ago
RF Micro RFMD 14 3/4 0.09 -0.21 15% decline in revenue
If these stocks, especially 3COM, go up today (Wednesday), as Quantum did yesterday on it's bad news, we think it signals a significant change in the market mentality.
A quantum leap, in fact, to a new world where the business behind a stock is less important.
The disassociation of a stock's price from the conditions of its underlying business begs the question of whether a stock is still "a good investment."
Traditionally, examining whether a stock is a "good investment" involved first examining the business behind a stock. Then came examination of the stock's price relative to that business, and perhaps followed with an examination of the history of the stock's trading by looking at its chart. But, in this different environment, three years into the strongest market conditions ever in history, with the longest economic expansion in history behind it, there is now more at work on a stock's price than economic conditions and business growth.
So what do you look at when you ask yourself "is this a good investment?"
The first thing you need to examine is your own risk tolerance. Which bothers you more? Investing defensively, whether it means raising cash or buying utilities or bonds, and "losing" out on the market's rise? Or continuing aggressive investments and "losing" profits or even new cash, if the markets decline? Which bothers you more?
The second thing to ask yourself, is what happens to me, if and when potential buyers of my stocks start to use different criteria for valuing the stock, then they do now. Can I make a margin call if I have to?
If 3COM does rise today, on strong volume, as it did today, and as Quantum did on its bad news, it does not mean you will never lose money on your stocks. It just means it is harder to find an explanation why you might.
Is Quantum still a good investment? Is 3COM a good investment? Are stocks still good investments? When answering these questions, we can help you with comparisons to other stocks, and analysis of trends in the market. But the first step to answering any of these questions is to ask yourself: "what happens to me, if they aren't?"
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