Dan Niles makes the WALL STREET JOURNAL
Hey Kemble,
Danny boy is finally making up for his past sins <VBG>
The influential "Heard on the Street" column published today can't hurt. Remember when I said that I was loading up on DELL below 40 last December?! I think a little self-congrats to us diehard longs is more than warranted, don't ya think??? <G>
Take care and enjoy the article below!
Sam
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March 14, 2000
Heard on the Street
Guru's Smiles Boost Dell, Intel on Dark Nasdaq Day
By SUSAN PULLIAM
Staff Reporter of THE WALL STREET JOURNAL
There is a new Michael Jordan among technology-stock analysts: In a high-pressure arena, he is the go-to guy. And so far, he has been nothing but net.
Monday, BancBoston Robertson Stephens analyst Dan Niles upgraded his rating on Dell Computer and Intel, sending Dell up 3 1/2 to 54 3/4, and boosting shares of Intel as much as 5 before they closed up 1 15/16 at 122 1/8.
His story -- that earnings momentum and better margins have returned to the large tech-stock arena after a year of pricing pressure and a Y2K-related second-half slowdown in tech -- was the sort of research note that might have floated by unnoticed had it come from some other analysts.
But lately, when the 32-year-old Mr. Niles talks about big technology stocks, Wall Street listens. After a year of prescient calls about shares of Dell, among others, Mr. Niles has developed a strong following among many investors. "He's the new guru. His voice is being listened to," says Seth Tobias, who runs Circle T, a New York hedge fund.
Not to say Mr. Niles is the only superstar in the red-hot world of technology investing. Henry Blodget of Merrill Lynch still calls the shots when it comes to Internet stocks. And Morgan Stanley Dean Witter's Mary Meeker, also a dot-com analyst, has her share of devoted followers.
But Mr. Niles's rise to fame shows how quickly stars form in the hyperdrive lifespan characteristic of technology; oftentimes, the stars also rapidly burn out. Indeed, Mr. Niles has filled a void left only one year ago after Merrill technology analyst Thomas Kurlak, who was widely viewed as the big ax on large-capitalization technology stocks, left the Street to join New York hedge fund Tiger Management.
Mr. Kurlak's streak across the sky ended abruptly at the end of 1998 when, after years of pounding the table on Intel, he turned bearish on the stock, saying it was bound for a decline that never materialized. As clients began to drop him like a hot potato, he left to join Tiger. Mr. Kurlak didn't return calls for comment.
Now, investors have latched on to Mr. Niles. He wasn't the only analyst to make bullish remarks about Intel and Dell Monday. Bear Stearns and Bank of America also issued positive research reports on the two companies. But the buzz on trading desks was all about the call from Robertson Stephens.
"In my mind, he's the ax," says Jeff Wrona, manager of the PBHG technology and communications fund. "I can count a dozen times where he's made a major call that was refuted widely in print by other analysts, and he's been on the mark. I find that pretty unusual in large-cap tech-land. You can't afford not to listen to the guy," Mr. Wrona says.
Indeed, Monday's reaction wasn't the first time Mr. Niles's words have caused a big reaction in technology stocks. About a year ago, on Feb. 12, 1999, he sounded the alarm on Dell, saying revenue would be light and setting a new price target for the stock of 80 at a time when it was trading at 102. Dell fell 10 points that day, dragging the rest of the Nasdaq down nearly 3.5% as well. By the next day, Dell had already reached his 80 price target.
"That's what put me on the map," Mr. Niles recalls. Nowadays, he says, "I guess I'm carrying more weight than I used to. No one was more surprised than me to see Intel up 5 today."
Mr. Niles, a native of Sri Lanka, came to the world of Wall Street by accident, after studying to be an electrical engineer at Boston University. His girlfriend at the time, who later became his wife, was studying economics, and he couldn't help noticing that her work seemed more appealing. "I'd say, 'Wow, that looks more interesting than particle-accelerator design,' " he says.
What he noticed one year ago was a slowdown in revenue at Dell that the rest of the Street hadn't spotted. "The stock had been a monster that year, and it was a little like saying the emperor has no clothes." Last year, he recalls, "the macro picture was people were not willing to spend because of Y2K and in front of Microsoft [Windows] 2000. Demand always slows before that. Also, prices for computers collapsed for most of last year."
Now, he says, the picture has brightened for Dell, and Intel as well. "Fundamentally things have changed," he says. Now with Windows 2000 out, "there's a new software driver. If the software is more demanding, people buy more powerful systems. That's helping average prices of personal computers and components," he says.
Mr. Niles upgraded Dell for the first time this year on Jan. 28, after the computer maker announced fourth-quarter results that fell short of Wall Street estimates. "We said they'd miss, and as soon as they did, we said we'd upgrade because that is the day you can get involved," he said. In Monday's move, Mr. Niles upgraded his recommendation to strong buy from buy on Dell.
As for Intel, Mr. Niles first upgraded the chip maker to buy Jan. 10 after remaining negative on the stock most of last year. Shortly after the new year began, he recalls, "We said, 'Hey, things have improved. We are out of the woods.' " He then upgraded the stock to a buy. Bingo. The stock shot up to 122 1/8 Monday from 82 at the time. Monday, he raised his rating on Intel to a strong buy.
Mr. Niles also has shown a knack for calling short-term squiggles in Dell's share price and its quarterly performance.
After turning negative in February 1999, he decided the company's July quarter would be satisfactory, upgrading its shares on Aug. 9 to a long-term attractive from market performer and again to buy from long-term attractive on Aug. 18. He downgraded Dell to long-term attractive from buy in October, however, after anticipating that spending for the year-2000 computer glitch would slow in the fourth quarter and margins would take a hit from rising memory costs. Each time, he turned out to be right.
Mr. Niles notes that it is more enjoyable to be a guru on the bullish side, after investors' expectations for a stock have already been lowered, as they were last year for many big tech stocks like Dell and Intel. "The beauty of this is everyone got more negative as you came into late last year and early this year," he says. "That's when you wanted to get aggressive on the stock."
Write to Susan Pulliam at susan.pulliam@wsj.com
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