El: I sometimes post an excerpt from Briefing.com (it comes with Schwab). I'll post their whole tech stocks sector today. There are two bits on COMPAQ, but it might be instructive to see their survey of related tech stocks.
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General Commentary:
All of a sudden the outlook for the PC industry has deteriorated... Street concerned that sales won't live up to expectations and that pricing pressures are likely to increase... Group hammered on Friday when number of firms stepped up and cut ratings and earnings estimates for number one PC maker, Compaq Computer (CPQ 35 3/8 -5 5/8)... CPQ reportedly cautioned that it might not meet Q1 revenue and earnings numbers... Should be noted that similar fears undercut shares of Gateway (GTW 72 11/16 -7 7/16) prior to last quarter's earnings numbers... But GTW finished quarter on a strong note and managed to exceed estimates... Will CPQ do the same? Not sure... That's the problem with back-ended quarters... You don't know how company will do in last several weeks... Clearly, the risks of an earnings miss jump but it isn't a certainty... As such, near universal dumping of box-builders seems unwarranted... CPQ, GTW, Dell (DELL 80 1/8 -1 5/8), IBM (IBM 169 13/16 - 3 13/16), Apple (AAPL 34 13/16 -2 1/8) and Hewlett-Packard (HWP 66 7/16 -4 3/4) off their recent highs by 31%, 14%, 27%, 15%, 27% and 21%, respectively... Of course, weaker than expected PC growth bad news for component makers such as chip and disk-drive stocks... Not surprisingly, both were killed last week.
Jump in rates also weighing on tech sector given historically high valuations... Rate increase could also result in reduced capital spending... Combination extremely bad news for overinflated chip equipment group... Until the rate/earnings picture clears, expect this industry to pace downside.
Lack of earnings news this week leaves market focusing on strong economic data, threat of higher rates and deteriorating technicals... Suggests that sector will remain on defensive... Full list of companies scheduled to report this week/month can be found on Briefing's Earnings Calendar.
Internet industry one place investors have been able to find gains recently... But gains concentrated in leadership names such as Amazon.com (AMZN 128 1/8 +3 1/8), eBay (EBAY 334 +34 1/2), America Online (AOL 89 +1 13/16), CMG Information (CMGI 122 5/8 +4 1/4), Yahoo! (YHOO 153 1/2 - 1 7/8), CNet (CNET 114 5/8 +1 3/8) and DoubleClick (DCLK 89 7/8 - 1 1/8)... Not seeing the type of broad participation which accompanies Net manias... Consequently, unless underlying market tone improves, look for group to succumb to profit-taking in the days ahead.
H&Q Internet Conference being held from 3/1 to 3/3... See Events Calendar.
Computer Systems & Peripherals
Merrill made cautionary comments about Dell (DELL) on Thursday, then joined chorus of investment companies downgrading estimates and ratings on Compaq (CPQ)... See general commentary above for more... Changes in growth estimates for PC group are common... Happened several times last year, and we expect more of the same this year... Wide price swings associated with such periods are a by-product of group's historically high valuations... Seasonally slow period and sequentially difficult comparison periods suggest that street could remain anxious for at least another few weeks... But with most of the stocks well off their 52-wk highs, Briefing.com contends that additional downside risk is relatively modest.
As long as marketplace remains nervous over outlook for PC group, component industries like disk-drive/storage group will stay on the defensive... Briefing.com has noted several times over past couple weeks that sell-off in disk-drive/storage group is overdone both technically and fundamentally... However, momentum is clearly bearish and considering market's anxious state no reason to bet on change in tone today or tomorrow... Best bet is to wait for stocks to string together a couple strong days on increased volume before jumpinb back in aggressively... Group's losers on Friday led by Seagate (SEG 28 13/16 -2 1/16), Hutchinson (HTCH 31 1/8 -3 5/32), Maxtor (MXTR 8 1/4 -1 9/16) and Read-Rite (RDRT 8 1/2 -15/16).
Silicon Graphics (SGI 15 15/16 -11/16) announced that it will boost its buyback plan by 5 mln shares.
Computer Networking
FORE Systems (FORE 14 1/2 -2 13/16) plunged on news that SG Cowne downgraded stock to neutral from trading buy.
Xylan (XYLN 26 1/2 +1/2) bucked bearish trend on continued speculation that Alcatel (ALA) will make a bid for the company... Street expects company to fetch mid-30 price tag in takeover.
Relatively speaking group held up nicely, as Ascend (ASND 76 15/16 +2 3/8) posted a solid gain and Cisco (CSCO 97 13/16 -11/16) ended only fractionally lower... Group one area street doesn't see on short end of capital spending stick.
Computer Software & Services
Novell (NOVL 19 3/8 - 1 1/2) slipped in response to its as expected earnings number as investors had quietly hoped for a little better... Negative market tone didn't help... Don't expect stock to remain soft for long, however... Key resistance is at 20 57/64, with penetration setting up move to 24-25 range.
As expected, Intuit (INTU 98 15/16 +9 3/8) shot ahead on its stronger than expected earnings report... Solid momentum on the top and bottom line suggests stock will extend rally in the days to come... Key resistance is at 104 3/4 (all-time high).
CompuWare (CPWR 55 15/16 -4 15/16) continues to exhibit poor relative strength despite decent earnings/revenue growth prospects... Maybe stock will get back on track this week after it splits 2-for-1 today.
Internet
eBay (EBAY 334 +34 1/2) surged as traders rushed in ahead of Tuesday's 3-for-1 stock split... Stock also up in anticipation of closer relationship with America Online (AOL 89 +1 13/16)... Friday's gain catapulted stock to new all time high... Advance occured on more nearly 3x average daily volume... Stock could have a hard time holding on to gains Monday, as company revealed that the federal government is investigating it for possible illegal transactions."
New issue PcOrder.com (PCOR 47 1/8 +26 1/8) showed that investors still hungry for new NET offerings... Though not the stuff of legends, still a strong opening... Expect stock to continue climbing for at least another couple of days, afterwhich stock likely to succumb to profit-taking.
America Online (AOL 89 +1 13/16) found itself the subject of takeover rumors, as Business Week ran story suggesting that AT&T and AOL might merge... This story has floated around of and on for months... Briefing.com doesn't expect any such deal, however.
Lycos (LCOS 87 5/8 -5 3/8) came up a loser despite posting narrower than expected loss... Company still having a hard time convincing anybody but us that acquisition by USA Networks would be in long-term interest of shareholders.
Yahoo! (YHOO 153 1/2 - 1 7/8) held up reasonably well given tone of market... Stock should get pop ahead of Thursday's meeting with analysts.
ING Baring Furman Selz reiterated its strong buy rating on MindSpring (MSPG 85 1/2 +1/16) noting that company's forecast of operating losses into year 2000 due to acquisitions was already largely factored in.
Semiconductor
Ouch! Fears of slowdown in PC sector, combined with downgrade of Micron Technology (MU 58 -8 13/16) and less than enthusiastic response to Intel's (INTC 119 15/16 -7 13/16) new Pentium III, led to widespread selling in chip industry... While overall volume totals not impressive, should be noted that most of chip stocks posted big losses on sizable jump in volume - not a good sign... Institutions clearly jumping ship.
As referenced above, Goldman Sachs removed Micon (MU) from its US Recommended List, downgrading it to market outperform... Cited valuation and pricing uncertainty... Stock 28% off 52-wk high... Next support at 50.
According to PC Data, Advanced Micro Devices (AMD 17 15/16 -3/16) sold more processors than Intel (INTC) in US retail market during month of January... AMD chisp in 43.9% of desktops sold to 40.3% for INTC.
Royal Philips Electronics made an all cash bid of $777 mln, or $17 a share, for VLSI Technology (VLSI 15 1/2 +4 3/4).
Group short-term oversold after Friday's gutting... Consequently, don't be shocked if chips stage partial comeback in early trading today... Watch volume totals closely for signs of conviction, however... Given angst over PC market and rising rates, Briefing.com contends it is too early for a sustained recovery... As such, we expect volume on rebound attempts to be relatively light.
Semiconductor Equipment
We were near alone in voicing disbelief in magnitude of group's gains over past four months considering lack of fundamental justification... Hopefully you took heed of our warnings that group was vulnerable to sizable retreat at first sign that all might not go as expected... Jump in rates prompting investors to reassess sector, as higher rates threaten capital spending projections... Extreme valuations also put into question.
Applied Materials (AMAT 55 5/8 -8 1/8) upped to buy from hold by Gerard Klauer Mattison with price target of 85.
Friday's other big losers included Teradyne (TER 47 3/4 -8 1/4), Lam Research (LRCX 29 9/16 - 4 1/8), Kulicke & Soffa (KLIC 25 3/8 -3 1/2) and Brooks Automation (BRKS 21 7/8 -2 1/2).
Telecommunications Equipment
Group fared relatively well all things considered, with only big losers being PictureTel (PCTL 8 11/16 - 45/64)... Rest of losers down between 1% and 2.5%... Based on superior growth prospects and less extended technicals expect group to continue exhibiting impressive relative strength.
Prudential upped its price target on Ciena (CIEN 27 7/8 -7/16) to 36 from 26.
Nextel (NXTL 30 1/6 -3/16) announced that it will launch cell phone service in Lima, Peru after it announced it had reached an accord to connect to Telefonica del Peru's network. |
