Barrons,
Tech Favorites Set Torrid Pace In Quarter
BARRON'S ONLINE STAFF
Technology stocks were among Weekday Trader's biggest winners in the
second quarter, although some parts of the sector -- like PC hardware
--either held steady or lost ground. Fortunately we concentrated on
companies that eschewed price-competitive businesses and focused on
more profitable markets, like software or data communications.
Our biggest home run by far has been Qualcomm,
which holds a key patent for a wireless data
communications technology called code division
multiple access (CDMA). Its share price has more than
doubled to 143 3/16 since our last quarterly roundup, on April 1: The
stock had already doubled after our February 9 piece, "Bulls Say
Qualcomm is Poised for More Gains."
The gains stem from the imminent
deployment of its technology in the
latest digital handsets, and the
resolution of its patent dispute with
Ericsson, which will now incorporate
Qualcomm's technology. "The ability
to offer people new data services
pushes people towards CDMA, and
Qualcomm is the beneficiary," says
Pete Peterson, an analyst at Volpe,
Brown, Whelan and Co. The stock,
which split on April 14, closed at
143 3/16 Thursday, near its all-time high and a 320% percent gain from its
closing price on February 9.
Another huge data communications winner was FORE Systems, which
makes high-speed switches. The stock nearly tripled to 34 7/8 from 13 1/4
when Weekday Trader wrote about it on October 21, 1998 ("Is Fore
Ready to Switch into High Gear?") -- but for other reasons. Back then, we
said FORE might be acquired and on April 26 it was -- by Britain's
General Electric.
Computer Associates, like stocks of other software companies, was
dragged down by concerns that the Year 2000 problem would monopolize
companies' resources. But today, the stock is nudging its all-time high at
54, an impressive 54% jump from the 34 15/16 at which it sold on April
12 when Weekday Trader wrote "Nowhere But Up for Computer
Associates?" The reason? Online vendors need sophisticated back-office
systems. In that regard, the acquisition of Platinum Technologies -- which
raised eyebrows last year -- is starting to pay off.
Siebel Systems, which makes
automation software for front offices,
has also delivered. At Thursday's
closing price of 64 (near its all-time
high) it's up 58% from 40 7/16 on
April 27, when our story "Software
Companies Wave the 'Net Flag,"
ran.
We also said Northern Telecom
deserved a higher premium, because
it played in the same league as
heavyweights Lucent Technologies and Cisco Systems ("Good Earnings
Boost Bullish Case on Nortel," January 26). Five months later, the
company has been renamed Nortel Networks and the stock has shot up
55%, to 90 5/8 (near its all-time high), from 58 7/16, driven by deals with
AT&T, MCI WorldCom and Sprint, as well as new products from its
recently acquired Bay Networks unit.
Last year, Weekday Trader identified several technology stocks as good
turnaround candidates; they now appear to have realized their promise.
The stock of Adaptec, which makes data networking gear, has increased a
hefty 153% since last June, to 38 ¼ from 15 7/32, driven by new
management and robust demand for servers ( "Adaptec Should Rebound
from Busted Merger," June 29, 1998).
Spurred on by a recovery in Asia
and a rally in semiconductor stocks,
Motorola shares also have more than
doubled to 98 1/8 (an all-time high)
from 44 9/16 since September 29,
1998 when we wrote "A Turnaround
for Motorola? Don't Laugh." Plans
to spin off Hewlett Packard's
instrument business, along with a
new focus on e-commerce and cost
controls, has propelled the stock of
that technology giant ahead 84% to
101 3/8 (an all-time high) from 54 ¾ last August 26, when we wrote "HP
May Be Finding Its Way Again."
We also had our share of losers among tech stocks. We got it way wrong
with Micron Technology, which we said would benefit from more demand
for memory chips and an Asian recovery ("Throwing the Chips Out With
the Bath Water," February 18). But DRAM prices are still not stable, and
the stock is off 31% from then, to 43 1/4 from 62 7/16. Similarly, investors
soured on Com21 after a cable industry consortium didn't certify Com21's
modems for retail sale. Today at 17 1/8, it's 33% down from 25 1/4 on
January 19, when we called Com21 a cable modem play ("Excite Deal
Shows Cable Modem is King"). Finally, shares of 3Com have fallen 22%,
to 27 1/16 from 34 5/8 on February 23, when we wrote "Bulls Say 'Palms
Up' for 3Com". Clearly revenues from cable modems and the trendy Palm
Pilot still haven't offset 3Com's weakness in low-cost PC Cards and
modems. And executives still shrug off takeover rumors.
Another area we did well was in our
assessment of financial stocks. Back
in April, we suggested that
high-flying brokerage stocks looked
overvalued because earnings
estimates were too high, the market
for initial public offerings could slow
down, and online trading would cut
commissions of traditional firms
("Hold the Champagne for Brokers'
Stocks," April 19). The stocks we
mentioned, like Merrill Lynch,
Morgan Stanley Dean Witter, Discover and J.P. Morgan, fell between 7%
and 21%. While they have recovered somewhat from there, Merrill is still
off about 10% since we published our story.
On February 3rd, we suggested that,
Wall Street's confidence in Wells
Fargo would grow in the wake of its
merger with Norwest as Norwest's
management began to whip Wells
into shape ("Wall Street Hops
Aboard Wells Fargo Stagecoach").
That now appears to be happening.
Wells Fargo also is aggressively
using the Internet: By 2002 it expects
to more than double to 2.5 million its
current online customer base of
930,000. In the meantime, the stock has risen about 28% to 42 ¾ from 33
1/2.
Weekday Trader, Part Two: Health Care was a Mixed Bag
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