Today, I sold 60% of my NVLS and 50% of my AMAT. Considering my NVLS and AMAT puts and covered calls, I'm effectively short NVLS and AMAT. I agree with those who believe that the equipment stocks are too expensive at current prices (at least for the next few quarters). I'd be surprised to see these stocks make a sustained advance before front-end bookings increase. That's probably not likely for another 6 months, at least.
Although the stocks are cheap based on FY2000 earnings, I don't think that they will be able to hold on to the current prices as earnings erode over the next several quarters. In the longer term (1 year and more), AMAT and NVLS are some of the best places to invest in the equipment industry. Unfortunately, it looks as if substantially cheaper prices will arrive before the stocks recover their old highs.
A good sign of a bottom will be when industry insiders start buying stock. The downside on these stocks is at least the 52-week lows. It's certainly possible that they will hold their lows, but if the industry weakness continues into 1999, the equipment stocks (especially the wafer fab stocks) could approach 1996 lows eventually. Following the ultimate bottoming (which could be a double-bottom, spanning 2.5 years-1996 to 1999), there's going to be one helluva rally in the leading stocks: AMAT and NVLS could trade at 3 times their current prices in 2-3 years; they could increase 5-fold from early 1999 to late 2000.
I'd like to be wrong on the near-term outlook, but I advise all longs to protect your positions.
Good luck, as always.
Todd |
