Volatility is good for E*Trade--lousy for EGRP holders
Off Bloomberg-- (not specific to EGRP)
Nasdaq's Swings Could Lead to Bargains: U.S. Stocks Outlook
Nasdaq's Swings Could Lead to Bargains: U.S. Stocks Outlook
New York, Dec. 3 (Bloomberg) -- When the Nasdaq Composite Index
dropped Tuesday to its lowest point in two weeks, Uri Landesman,
chief investment officer of AFA Management Partners LP, saw
opportunity.
He bought 50,000 shares of ITC DeltaCom Inc. at its lowest price
in about three weeks, doubling his holdings in the fiber-optic
telecommunications service. He considered the purchase a bargain,
even though the stock fell 4 percent from Tuesday's close through
today.
``I love volatile markets,' said Landesman. ``People get
hysterical, and if you have the patience to buy things at lower
prices you can sweep up some pretty good deals.'
It was a week of swings for U.S. stock market. After starting off
with drops of 0.8 percent and 2.5 percent on Monday and Tuesday,
the Nasdaq jumped 5.5 percent over the remaining three days of
the week. The index, which is 51 percent computer stocks, has
gained 29 percent in seven straight weekly gains since Oct. 15,
putting it on course for the biggest annual advance in its 28-
year history.
The Nasdaq's historic rise has convinced some investors that a down
move is as likely as a further move up.
``It's hard to trust this market, hard to be at ease that there's
anything of substance under there with the parabolic moves it's
made,' said James Griffin, a market strategist at Aeltus
Investment Management Inc. in Hartford, Connecticut.
There's certainly enough fuel out there to spark a retreat:
-- Individual investors scared about computer breakdowns
associated with the year 2000 may be tempted to pull money out of
the market for safety's sake.
-- Some investors and traders expect 2000 to be the year of the
``Big I' -- inflation -- as the prices of oil and other
commodities surge and a tight labor market drives wage costs
higher. If they're right, the three quarter-point interest-rate
increases by the Federal Reserve this year may not be the last.
-- 1999's losing stocks may drop even more as investors sell them at a
loss to offset capital gains taxes on profits they realize from
winning shares.
``December's generally a volatile month,' said Landesman, ``But this
December is going to be unusual for all these factors.'
`Buy the Good Ones'
Investors should take advantage of a December declines in the market
to buy companies with a history of beating analysts'
expectations, said Donald Selkin, chief market strategist at
Joseph Gunnar & Co.
``Stay the course, buy the good ones,' said Selkin. He recommends
General Electric Co., which has been trading places with
Microsoft Corp. this month as the most highly valued U.S.
company. He also likes Lucent Technologies Inc., the world's No.
1 phone equipment maker, and Oracle Corp., the largest database
software company.
GE's earnings have met or topped the average forecast from analysts
for five of the last six quarters. Lucent has surprised analysts
the past six quarters by at least 5 percent. Oracle also has beat
or met expectations.
It's worth investing in smaller telecommunications companies such as
JDS Uniphase Corp., which makes fiber-optic equipment parts, and
Qualcomm Inc., the second-most popular developer of cell-phone
technology company, Selkin said. JDS Uniphase has a market
capitalization of $43.6 billion and Qualcomm's shares are worth
$63.4 billion. ``They're riskier,' Selkin said. ``But you should
hold them anyway.'
JDS Uniphase's profits have doubled analysts' estimates, on average,
over the past six quarters. Qualcomm beat them by an average of
18 percent.
Terayon
Telecommunications companies, retailers and firms that sell products
over the Internet tend to be the most volatile. Landesman said
he'd buy Terayon Communications Systems Inc., if the price
dropped.
Terayon, a cable modem maker whose earnings have been higher than
analysts expected four quarters out of the last five, has seen
its shares climb 73 percent so far this year. The company hasn't
made a profit since it sold shares to the public in August 1998.
Still, Landesman said, ``It's a real exciting player in high
speed data over cable wires.'
U.S. unemployment held at a 29-year low in November and wages
rose at the slowest pace in three months. Still, ``The labor
market is tight,' said Chris Guinther, a fund manager at Banc
One Investment Advisors Corp. ``We do expect to see some
inflation, and we're watching that carefully.'
A week from next Thursday, the government's consumer price report
comes out. If consumers are paying more for goods than economists
expect at that time, it could be an red flag to the Fed. That
would drive stocks lower, and temporarily slow the gains even in
fast-rising technology stocks.
``People are likely to take money off the table because they've made
more money than they thought they would,' said Guinther. ``Given
interest-rate fears, you're going to take profits, and you're
going to take them in technology because that's where you've made
the most money.'
And this is when investors should strike, said Selkin. ``If good
stocks go on sale, it's a good time to buy.'
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