Smart Money Leaving "Telecom"?>
Top Funds Pare Ericsson, Alcatel, Hit By Emerging
Economies' Ills
Investor's Business Daily
The "smart money" is saying goodbye to some of the world's major telecom
stocks because of financial problems in emerging markets.
L.M. Ericsson Telephone of Sweden and Alcatel Alsthom of France were
among telecoms sold by top mutual funds.
IBD surveys funds rated at least A-. Tracking their selling is a good way for
investors to keep abreast of potential weakness in a stock.
Some other names that dotted the selling list include CompUSA, Raytheon,
Diamond Offshore Drilling and Inland Steel Industries.
The selling in overseas telecoms was a bit of a surprise. The reason? IBD's
Telecommunications-Equipment group - which includes Ericsson and Alcatel
- is rated 19 out of 197 groups for six-month price performance. The
Telecommunications-Cellular group is 34th.
Ericsson peaked at 34 on July 20. It fell to 15 by Oct. 8. That was due to
weakness in the stock market and a deceleration in earnings growth. The
firm's earnings gains for the latest three quarters slowed from 68% to 33%
to 11% and then to 5%.
From its October low, Ericsson rallied to 291/2 by Dec. 9. However, the
next day it gapped lower after forecasting a weaker- thanexpected fourth
quarter. The stock has since retreated to 23.
Ericsson blamed the economic slowdown in Asia and Latin America. The
Street expected a 12% rise in fourth-quarter net to 36 cents. That's been
cut. Standard & Poor's, for example, now looks for only 27 cents, a 15%
drop from a year ago.
Alcatel is a battered issue. It tumbled from 471/8 on July 16 to 16 by Oct.
1. The stock gapped down 12 points Sept. 19 when it disclosed operating
income would be hurt by the financial crisis in Southeast Asia and Russia.
Alcatel gets 40% of sales from telecom equipment such as cables and
batteries. It also makes power-generation equipment. Analysts see an 18%
rise in earnings this year to $1.14 a share, according to First Call. That's
down from a previous forecast of a 50% gain to $1.55 a share.
Vodafone Group's stock is faring better. However, IBD found 15 funds
selling the U.K.-based cellular network operator while only five bought. The
stock has a Relative Strength of 94 and a 96 Earnings Per Share rating. It
rallied aggressively to get to 151 after falling to 96 in early October.
It avoided the carnage of its Swedish and French brethren because it was
not in Asia or Russia. Vodafone's business is mostly in the U.K., Western
Europe and South Africa. Some analysts do express concern about
Vodafone's valuation. The company sells with a 48 price-earnings ratio,
while its earnings growth should be only 20% to 25%.
A majority of top funds unloaded CompUSA, which runs 207 computer
stores. The stock is a laggard. It topped out in December a year ago at 38
after a two-year run from 7. It now trades near 13.
The decline in the stock was due to three quarters of subpar results.
Earnings for the fiscal year ended June 30 fell 30% to 69 cents a share. This
fiscal year, analysts see just a modest recovery with net up 7% to 74 cents a
share.
Diamond Offshore came under heavy selling. The stock is in the struggling
oil-service sector, which has been hurt by weak crude prices. Diamond
staged a rally in October from 21 to 333/4. It's sagged back to the low 20s.
Analysts see net declining 13% in '99.
IBD found 35 top funds selling Raytheon's stock, while 26 bought. The
stock is now breaking down after getting to 597/8 in late October. It's
trading near 51. The aerospace firm's earnings this year will rise only 5%,
according to First Call. Next year, analysts see only a modest 8% gain.
(Copyright Investor's Business Daily, Inc. 1998.
_____via IntellX_____
Publication Date: December 18, 1998
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