Thread: A few straws to cling to, more about the upgrade and some concerns.
1. In a panicky last half hour with the DOW closing at its lowest point for the day, CA came back from a 5/8th to a 1 1/8th gain on the day on huge volume.
2. The Morgan Stanley Downgrade and Upgrade was discussed by Faber on CNBC this a.m. According to Faber the MS guy is very close to CA, recently hosted a banquet for Wang. Yesterday he downgraded but was appalled at the extent of the damage done to the stock price - consequently, felt compelled to reverse himself and recommend a market outperform. Faber said he had spoken to two MS clients who were not pleased with MS action and reaction. Faber and Haines poured scorn on MS.
3. Faber, who all day yesterday was saying he thought the fall was overdone, and that the caution about possible slowing growth rates was not radical, today mumbled something to the effect that it is hard to say that it was overdone, that he had spoken with the ML analyst who was adamant that he would not recommend a buy at $40 because a 12% growth rate going forward did not justify it. I may have the details wrong, it was very garbled. Also thought it odd that Faber, who yesterday was pouring scorn on the ML analysts and all the analysts should, a day later, be so influenced by one who was obviously trying to justify his downgrade.
4. The bounce back today ought to have been much stronger and it is worrying that it was not. Before the market collapse, late in the day, CA should have touched $44 and probably settled at $43. Based on the estimates given for this quarter and the next as set out in earlier posts I think we might reasonably expect the price to recover in fits and starts to about $46/47 in August/September. However, there will be great nervousness and volatility unless the company can come out with some compelling statement. The kind required could be (a) that the net effect of y2000 is not as negative as feared for this quarter because of increased revenues from problem solving (b) that the company expects to meet the old earnings estimates for the quarter and possibly the year (c) that the site license problem has been misunderstood or exagerated (d) there is to be a massive stock buy back programme (e) the three directors have agreed to a voluntary postponement of the period in which they can exercise their right to sell their bonus shares (f) that there is to be a stunning immediately accretive acquisition of a services company (g) confident forward looking estimates of good growth rates.
In the meantime, the covered calls approach might be good for those who understand it, but I think very active trading in and out as it jumps about $2 a time will whittle away the loss for most, and provide a good basis for a long position and an eventual return to $60+.
Would be interested in hearing other analysis and other strategies for reducing the loss.
Victor |
