Thread, for info from Briefing .com
3 Babies Cry Out To Be Held
I don't know about you but I find all the hand wringing over the mini-retreat in the market, especially the tech sector, amusing. It's as if the media and investors expect the market to always go up. I just can't get worked up over Sun Microsystems (SUNW) falling 7% in one day considering that it had been up 28% year-to-date, and more than 100% over the past three months. Even the selling in the Internet space, where big names such as Yahoo! (YHOO) and Amazon (AMZN) are off more than 40% from their recently established 52-wk highs, isn't too alarming given how fast and how far these stocks climbed since early October. The hard truth is stocks go up and down. And instead of crying over missed opportunities or minor corrective declines, I prefer to take advantage of this long-awaited retreat to find quality issues at attractive prices, so that when the reversal comes to a close I'm positioned to reap the rewards of the subsequent rally.
Just as a lot of bad stocks go up during broad market/sector rallies, many good stocks go down during broad retreats. It's called throwing the baby out with the bath water. As the title of today's Brief suggests, I have identified 3 babies which Briefing.com contends are crying out to be held for the intermediate to long term. Each of these companies have fallen well off their recent highs despite posting strong earnings numbers. Equally as important none of the three have taken out important support levels. Given their strong fundamentals and still bullish long-term technicals, the following stocks are poised for market beating returns once the overall tone improves.
Apple Computer (AAPL 38 13/16)
Apple recently posted its fifth straight quarter of better than expected earnings, and for the first time in years posted a year/year jump in revenues. Companies success being driven by a number of factors, including strong sales of its iMac computer and by tight cost controls. Despite posting a sequential earnings gain of 15% and a year/year jump of 136%, the stock has fallen 18% from its early year high amid concern that the company won't be able to live up to its recent past. But planned introduction of new PowerBook computers and a radically new/improved operating system suggests that AAPL should remain a growth story in the year ahead. Yes its tax rate will climb in FY99, but when you take into account the company's strong balance sheet you're looking at a company trading at roughly 15x estimated earnings, or roughly half the multiple of the overall market. Briefing.com sees upside potential to the 50 area.
Quantum (QNTM 24 3/8)
Disk-drive maker reported much better than expected earnings earlier this week, beating the street by 5 cents or 21%. Though year/year revenues slumped to $1.3 bln from $1.5 bln, sequential revenues rose by 14%. Sequential gains driven by strong sales in its hard drive and DLT tape and ATL tape units. Considering tough industry conditions, investors should focus more on sequential changes than year/year numbers. However, favorable comparison periods going forward suggest that QNTM will have little trouble posting year/year earnings growth in the quarters to come. Given that 11 of the 15 analysts covering the stock have moderate buy to neutral ratings on QNTM, there is plenty of room for ratings upgrades as company continues path to recovery. Should also be noted that non-hard drive business grew to a record 28% of total revenues last quarter underscoring success of companies diversified storage business model. Like Apple, we also like QNTM's solid balance sheet and quality management team. QNTM trades at 30.9x projected FY99 results but only 13.5x estimated FY00 earnings, while sporting a projected growth rate of 19%. Despite improved industry conditions, better-than-expected earnings, solid fundamentals, discounted valuations and strong management, stock is down nearly 19% from recently established high. Briefing.com sees stock turning around in short order, with upside potential over the next 12-to 18-months to the 40 area.
Qualcomm (QCOM 59 1/2)
Not down as much as the other two, but 12% drop in the two days since reporting much better than expected earnings providing patient, growth oriented investors good opportunity to jump back on the long-side. Qualcomm's retreat stems largely from cautionary comments from one investment firm concerning QCOM's ability to sustain growth in highly competitive market. We respectfully disagree and the numbers seem to support our view. In the company's recently completed first quarter revenues jumped to a record $941 mln, a 20% year/year jump. Growth was seen across product lines. Management also noted that for first time more digital cell phones were sold in the US than analog phones, an encouraging sign for future growth. International growth prospects also huge, especially if company can win access into European region. Traders should also note that the QCOM/Microsoft joint venture, WirelessKnowledge, which was formed to construct a platform to bring Internet access to wireless handsets, due to debut (commercial market) by mid-year. Recent consolidation within the group is another supportive factor. QCOM trades at 23.2x projected FY99 results of $2.57 and 17.6x estimated FY00 earnings of $3.39. Long-term growth projected at 32% or more than 4x growth rate of overall market. Briefing.com sees upside potential to the 71-73 range.
|
