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Technology Stocks : Compaq
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To: Leo Francis who wrote (634)11/16/1996 6:12:00 AM
From: Jay Yang   of 97611
 
Compaq short thesis:

Would appreciate any comments on this:

1) indications from the retail sector are bearish
- Circuit City said October same-store sales down 9%
- BestBuy said October same-store sales down 15%
- Computer City said October same-store sales down 17%
- Incredible Universe said Oct. same-store sales down 11%
- CompUSA, Office Depot, OfficeMax, Staples, all say computer sales have slowed

2) PC sales in 3Q were up only 15% - slowest rate in 5 years

3) total consumer spending was up only 0.4% in 3Q - slowest since 1991

4) consumer debt is at an all-time high; banks and credit card companies have been reporting alarming delinquincy and default rates -- in other words, consumers have borrowed to the hilt and have no more money to spend on computers

5) there is no Windows'95 in 1996 -- there are no new compelling applications spurring people to go out and buy new computers

6) many high-level executive departures to "pursue other opportunities" (see Forbes artice a couple of weeks ago)

7) dramatic increase in insider sales and filings to sell - highest level since fall of 1995 - insiders don't think stock is going much higher

In conclusion, the economy is slowing, consumers have no money, and PC makers are up against tough year-over-year comparisons. This is evident in the weak retail sales and the high level of executive departures and stock sales. I would recommend shorting or buying puts.
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