Bargains? In this market? Some good picks here
<<December 5, 1999
When the Nasdaq composite index dropped last Tuesday to its lowest point in two weeks, Uri Landesman, the chief investment officer of AFA Management Partners, saw opportunity.
He purchased 50,000 shares of ITC DeltaCom 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 Friday.
"I love volatile markets," Landesman says. "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 the U.S. stock market.
After starting off with drops of 0.8 percent and 2.5 percent last Monday and Tuesday, the Nasdaq gained 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 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," says James Griffin, a market strategist at Aeltus Investment Management in Hartford, Conn.
There's certainly enough fuel out there to spark a retreat:
Individual investors scared about computer breakdowns associated with the year 2000 might 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 might not be the last.
1999's losing stocks might 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," Landesman says, "but this December is going to be unusual for all these factors."
Investors should take advantage of December declines in the market to buy companies with a history of beating analysts' expectations, says Donald Selkin, chief market strategist at Joseph Gunnar & Co. "Stay the course, buy the good ones," he says.
He recommends General Electric, which has been trading places with Microsoft this month as the most highly valued U.S. company. He also likes Lucent Technologies, the world's No. 1 phone equipment maker, and Oracle, 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, which makes fiber-optic equipment parts, and Qualcomm, the second-most popular developer of cell-phone technology company, Selkin says.
JDS Uniphase has a market capitalization of $43.6 billion and Qualcomm's shares are worth $63.4 billion. "They're riskier," Selkin says. "But you should hold them anyway."
Profits at JDS Uniphase have doubled analysts' estimates, on average, over the past six quarters. Qualcomm beat them by an average of 18 percent.
Telecommunications companies, retailers and firms that sell products over the Internet tend to be the most volatile, but Landesman says he'd buy Terayon Communications Systems 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 says, 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," says, Chris Guinther, a fund manager at Banc One Investment Advisors. "We do expect to see some inflation, and we're watching that carefully."
A week from this Thursday, the government's consumer price report comes out, and if consumers are paying more for goods than economists expect at that time, it could be a 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," Guinther says.
"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 that is when investors should strike, Selkin says. "If good stocks go on sale, it's a good time to buy," he says.>>
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