Why is LU holding steady amid downturn?
Cisco, Lucent Offer Shelter From Net-Sector Storm
By Kevin Petrie
Yahoo Staff Reporter
SAN FRANCISCO -- Providing safe havens in the Internet maelstrom, shares of
Cisco (Nasdaq:CSCO - news) and Lucent (NYSE:LU - news) have been
largely unruffled by the exodus of capital from high-profile Net plays in recent
weeks.
Internet stocks have taken quite a clubbing since the Nasdaq Composite's
high-water mark on April 26. eBay (Nasdaq:EBAY - news) is still down 17%
from its high this year, and Amazon.com (Nasdaq:AMZN - news) is off 42%.
The same goes for Internet
bellwethers Yahoo! (Nasdaq:YHOO - news) , down 27%, and America Online
(NYSE:AOL - news) , down 26%.
By contrast, the two communications-equipment stocks corrected mildly before
joining Wednesday's recovery. Cisco, the leading builder of computer-network
equipment, is down 7% since April 26. Lucent, the largest supplier of gear for
telephone networks, is off 10% in the past month. The Nasdaq Comp has fallen
9%.
Even after the market's overall bounce Wednesday, money managers expect this
division in stock behavior to continue.
The correction was "vicious, but not surprising," says Curt Rohrman, portfolio
manager of the USAA Science and Technology fund, which holds both Cisco
and Lucent. "You're going to have big swings [in Internet stocks], as people go
manic depressive on them."
One reason for the stability is that even-keeled institutional investors hold a
larger stake in these stocks: They own 48% of
Lucent shares and 64% of Cisco shares, according to Market Guide. By
comparison, institutional ownership of Infoseek (Nasdaq:SEEK - news) , eBay
and priceline.com (Nasdaq:PCLN - news) is 20%, 11% and 0.2%,
respectively. These Net stocks have been dominated by trading among
individual investors.
"There are real buyers with real money to buy Lucent and Cisco. I'm not sure
you can say that about these second- or third-level Internet companies," says
David Brady, portfolio manager with Stein Roe Mutual Funds.
And unlike the e-commerce and portal plays jostling for control of their
markets, Cisco and Lucent shine as clear leaders in an industry that has already
seen its share of consolidation. Next month, Lucent expects to close its
acquisition of Ascend (Nasdaq:ASND - news) , currently the No. 2 computer
networker.
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