1. BLUE LIGHT SPECIALS
Boy, I must admit that it is hard to write about the markets when they are
crumbling. I am the consummate, long-term bull, but not many people want
to hear what you have to say when the three major U.S. indexes drop 1,000
points in one session as they did last Friday.
It is funny, because I woke up feeling rather bullish that day. I was
betting on a flat CPI, so I opened a couple of trading positions on
Thursday afternoon. Everything was fine Friday morning before the
opening, but then the CPI came in high and everybody bolted for the exits.
I abandoned my new positions on the open with very little damage done, and
then did my best to keep my eyes shut for the next six hours. At 3:30, I
decided it was a good day to add to some mutual funds, so I put orders in
for Guinness Flight World Wireless and E-Trade Global Titans index fund.
After the bell, I raced home to play with my son. It is always nice to
take a step back and appreciate what you have, especially after the market
beats up on you. There are far worse things that can happen to you than
losing a few bucks. I knew Monday would arrive soon enough, and I would
get mine.
That leads us to today. The markets are back, big time, but already the
pundits are tearing investors in separate directions. The bears are still
claiming that the Nasdaq will see the 2000's before the 4000's, and the
bulls are emerging from their storm shelters, preparing for another
assault upward. Where do I stand, you ask? Frankly, I think enough is
enough, and only a fool would attempt to nail a bottom perfectly before
getting long. Greenspan's work is finally paying dividends, and stocks
are moving into stronger hands now. The bubble popped, and many new
investors found out the hard way that stocks also go down. Long-side,
high tech margin players are hurting, and new money is being put to work
at current levels. This rotation is ultimately necessary, since it
"shakes the weak hands", as some analysts like to say.
Take a quick peek at one of my favorite companies, Phone.com (PHCM, $77).
In one month, Phone.com dropped from $208 to $52. Phone.com was a heavily
margined security, and when the margin calls came in, Phone.com was the
victim of forced selling. Did anything change with the company in the few
weeks it took them to lose 75% of their market cap? Sure. They added a
couple more customers and forged a few more alliances. Traders were
excited about Phone.com when they were running it to $208, and they paid
no attention to valuation. However, when New Economy companies fall out
of favor, valuation becomes important. Companies with promising futures
and no earnings like Phone.com, Aether (AETH), and Global Crossing (GBLX)
are among the hardest hit. Likewise, when the speculators return, these
volatile puppies are likely to rise faster than they fell. Such is the
world of technology investing as we know it.
The wireless sector remains my choice for explosive growth potential.
Being that I am a "buy the dips" kind of guy, I am pretty excited right
now to be able to add to some positions down here. Here is a list of
abused stocks looking for new owners. If you have money you are looking
to put to work, this may be a good starting point for your research.
Vodafone AirTouch (VOD, $50)
Vodafone is the largest wireless provider in the world, and soon will have
reach in the U.S. through their partnership with Bell Atlantic, Verizon
Wireless. Overall, they operate in 23 countries and have close to 30
million customers. They currently trade at a 25% discount from their
high, and sport heavy institutional ownership. The Mannesmann purchase is
behind them, and the future again looks bright for this behemoth. On
April 12, Merrill Lynch said they expect Vodafone to double from this
level over the next year.
Ericsson (ERICY, $84)
As the "other" Scandinavian cellular phone manufacturer, investors
sometimes overlook Ericsson. That is too bad, because Ericsson is a nice
company to know. For starters, they are much, much more than a handset
maker. Ericsson's suite of products includes systems and services for
handling voice, data, images and text in public and private fixed line and
mobile telecommunications networks, power equipment, defense electronics
and telecommunications and power cables. Earnings are expected to grow
more than 65% next year and they recently announced a small dividend,
which is a rarity for OTC securities. Also lost on investors was their 4
for 1 stock split announcement a few weeks ago, which is due to take place
on May 8. Ericsson has corrected 25% from their recent high of $105.25.
Motorola (MOT, $118)
Some folks point to Motorola as the main catalyst for this last huge
sell-off. I say they were simply in the wrong place at the wrong time,
and their comments about the future were not nearly as bad as nervous
investors led themselves to believe. During the conference call, they
said they would miss the full year earnings estimate of $3.14 by a
"whopping" 4 cents. Forget the fact that it is still a 51% improvement
over the prior year, because apparently that doesn't matter. Motorola has
now corrected more than 35%, and they trade at a FY2001 P/E of just 27.
Motorola is still positioned wonderfully to capitalize on the wireless
explosion. In addition to phones, Motorola manufactures and sells a
diverse line of electronic equipment and components. Products include
communications systems, semiconductors, electronic engine controls and
computer systems. Motorola is due to split 3 for 1 on June 1, and I would
expect them to gain some momentum as that date approaches and investors
step back and take a rational look at what this company has to offer.
Aether Systems (AETH, $109)
{Ed. Note. Mike wrote this when the price was $71.]
Aether provides wireless data services, systems and software, enabling
people to use handheld devices for mobile data communications and
real-time transactions. Their focus is largely on the financial services
sector. On March 10, Aether touched $345 per share. Today, just 26
trading days later, Aether sits 80% lower at just $71 per share. [Today
the stock closed up 38 at $109.] Aether, like Phone.com above, was the
victim of momentum and margin, and now not many people know what to think.
A secondary stock offering (which priced at $205) also hurt Aether at the
time, but now looks brilliant.
However, Aether came up aces in my book by extended the insider lockup
expiration date a full 6 months, from April 17 to October 17. That shows
tremendous confidence and it should put shareholders at ease to know that
officers aren't bailing on them. Many investors, including institutions,
own Aether at much higher levels than this. The stock that has been
forcefully dumped or sold in a panic is now in new hands. Even at these
levels, Aether carries tremendous risk due to mounting losses.
Profitability is a ways off at this point in time, but if you are
searching for a place to place some risk capital, this may not be a bad
choice.
Mike Barrett
Contributing Editor
Bull Market Report
www.Bull-Market.com
MikeB@Bull-Market.com
Mike Barrett owns a technical consulting firm specializing in financial
applications development, and he trades his own account. He holds
positions in PHCM, ERICY, MOT, and VOD. This article is not to be
construed as a recommendation to buy or sell any of the companies within. |
