Barrons>
September 29, 1999
Niche Tech Stocks Led the Pack This
Quarter
By BARRON'S ONLINE STAFF
Editor's Note: Today we begin our quarterly roundup of how the stocks
we wrote about in Weekday Trader fared, with a look at our winners.
Tomorrow, we come clean on the losers. (Incidentally, we call a story a
"winner" if the stocks performed according to our expectations -- be
they favorable or cautionary.)
Until recently, technology stocks have put the rest of the market to shame,
and they also have been among the biggest winners of the stocks Weekday
Trader has written about. While big names like Motorola, Hewlett-Packard,
Nortel Networks and Qualcomm shone in quarters past (see "Tech Favorites
Set Torrid Pace in Quarter," July 1), less-well-known niche technology
companies were the leaders this time around.
Software companies, laggards a few months ago,
have caught up -- and then some. Citrix Systems,
which makes software for servers that connect
Internet appliances, is up 37% since we wrote "Software Companies Wave
the 'Net Flag" on April 27. Check Point Software has more than doubled and
Security Dynamics (now called RSA Security) is up 60% since we wrote
"With Y2K 'Over,' Software Spending Hits the Web" on March 4. And in
computer security, Symantec has risen 138% since April 6, when "Casting
Their Net a Little Further" appeared.
Among chip makers, Cypress Semiconductor is up 56% since June 21, when
"Some Telecom Chip Makers are Catching up Fast" ran. And in the
programmable logic area, Xilinx and Altera have gained 47% and 25%, since
we did a positive story about the group on May 10 ("Programmable Logic
Stocks Become Tech Havens").
In chip design, runner-up Synopsys seems to be catching up -- fast -- with
wounded leader, Cadence Design Systems. The stock is up 29% since we
profiled the company on April 29 ("Synopsys Shows That Runner-Up Can
Finish First").
Plays on e-commerce were also technology stars, led by Legato Systems,
which has risen nearly 70% since we wrote a positive story on the storage
management company on May 24 ( "Legato Stock Ready to Sing").
Doubleclick is up an impressive 37% since we highlighted that company three
days later in "Fund Managers Nibble Carefully at 'Net Stocks."
In the cable equipment arena, Scientific-Atlanta is up 62%, while General
Instrument is up more than 30% since we highlighted them on January 19
("Excite Deal Shows Cable Modem Is King"). Much of GI's recent gain came
in the wake of Motorola's $11-billion acquisition of the company announced
earlier this month.
Telecommunications stocks also have been stellar performers. Since "Fiber
Kings Have Fallen -- to Bargain Prices" appeared on October 13, 1998, two
of the stocks we mentioned -- IXC Communications and Qwest -- have
gained more than 75%.
Local phone companies we highlighted at around the same time, in "For Real
Safety, Some Turn to Main Street," have also made good gains. Century
Telephone has advanced about 30% and Alltel has done even better,
appreciating 50% since last October 8. As for wireless carriers, Omnipoint
has nearly tripled and Nextel Communications has more than doubled since
"Don't Hang Up on Wireless Stocks" ran on June 11, 1998.
We've done pretty well with some of the other stocks we've written about,
too. A year ago, higher interest rates and currency devaluations had
decimated Latin American stock markets, causing the major indexes to
tumble by over 40%. In the face of such gloom, Weekday Trader suggested
that some defensive Latin stocks looked attractive ("Gutsy Investors See
Value in Latin America," Sept. 10).
Six weeks later, as fears of a global slowdown subsided, we noted that Latin
American growth would eventually bounce back as well. We pointed out that
the shares of leading Latin American companies like Coca-Cola bottlers
Femsa SA (KOF) and Embotelladora Andina SA (AKOA), and utilities like
Companhia Paranaense de Energia Eletrica (ELP), Telefonos de Mexico
(TMX) and Telefonica Argentina (TAR) offered good value. TelMex has
more than doubled since our original story ran, and the Brazilian, Mexican and
Argentinean bourses have risen anywhere from 70% to 140% during that
time.
Wall Street was pessimistic about oil prices before the Organization of
Petroleum Exporting Countries' March 1999 meeting. But when OPEC
approved production cuts, Weekday Trader suggested the cartel had reached
a turning point ("Firm Crude Prices Could Boost Energy Stocks," March 24).
And as OPEC kept up 90% compliance through the summer, we said crude
could rise to $25 per barrel, a level reached earlier this month ("As Crude Oil
Hits $20, the Next Stop May Be $25," July 13).
Consequently, we saw good times ahead for stocks of oil service and
exploration and production (E&P) companies like Halliburton; R&B Falcon;
Apache; Petroleum Geo-Services; Union Pacific Resources ("Bulls Expect
UPR's Stock to Rise as Debt Falls," May 25), and Kerr-McGee ("Bulls Say
Kerr-McGee Has More Room To Rally," June 22). Since that first bullish
report, many oil service stocks are up 30%-50%, while E&P shares have
jumped 20%-30%.
Recently, however, we noted that oil service valuations are getting stretched,
insiders are selling and OPEC might eventually open the oil spigots again
("Hot Oil Service Stocks May Be Vulnerable," September 14). The stocks
have since drifted down from their highs.
Among other companies we've covered, Harley-Davidson, which Weekday
Trader profiled in a positive light last fall, has performed well, too ("Hog-Wild
Harley Buyers Could Rev Up Stock," October 14, 1998). It's risen 54%
from its 32 3/8 price nearly a year ago.
In the health care sector these days, it seems you can't win for losing -- but
Weekday Trader "won" by warning investors away from potential losers.
Since a year ago, when "Sky-High Drug Stocks May Not Be Safe Havens"
(September 23) was published, we have written several columns asserting
that large-cap U.S. drug stocks looked overvalued. The problems: thinning
product pipelines, increasing competition from generic drugs and a
consequent slowdown in earnings growth.
Among the companies we highlighted
was Merck, one of the bluest of the
blue chips, which we said didn't have a
lot of blockbuster drugs in its pipeline
("Is Merck's Medicine Chest Getting
Bare?" March 9). The stock has lost
more than 20% of its value since it
closed that day at 83 1/8.
Other drug stocks whose shares have
dropped sharply include Eli Lilly and
Schering-Plough, which we cited in
"Some Drug Companies Sing the Pipeline Blues" on March 18. Lilly, whose
Prozac sales have been under pressure from competitors, and
Schering-Plough are both off around 30% from the time our story ran.
In March, we also wrote a critical story
about medical device maker Guidant,
which we said looked vulnerable to
erosion of its highly lucrative stent
market ("Guidant Looks Like A Falling
Star," March 23). Stents are tiny
devices used to hold blood vessels
open following angioplasty and other
procedures. The shares closed
Wednesday at 49 11/16- down 16%
since our initial story appeared.
One group that has been absolutely decimated has been assisted living stocks.
Early this year we warned that possible cuts in Medicare funding and these
companies' liberal use of off-balance-sheet financing would lead to no good (
"Assisted Living Companies Become Stocks From Hell," February 4). Since
then, Sunrise Assisted Living has fallen nearly 30% and shares of CareMatrix
Corporation have lost an eye-popping 70% of their value.
Finally, in the
winners-because-we-said-they'd-be-losers
category, the Australian-themed
restaurant Outback Steakhouse was a
favorite back in the spring. But with the
stock near all-time highs, Weekday
Trader noted that some pros were
growing cautious because of possible
saturation and fears the company
couldn't sustain its growth ("Slowing
Growth Could Spoil Outback's Taste,"
May 17). Since then, Outback
Steakhouse shares have fallen more than 20% from the 34 11/16 at which
they traded that day.
This story was written by Barron's Online staff writers Vito Racanelli, Lawrence Strauss
and Carolyn Whelan.
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