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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Dealer who wrote (1987)	9/18/2000 9:51:35 AM
From: Dealer	Respond to of 65232

ELON/JDSU--Fish or Cut Bait: Fashionably late By Paul R. La Monica Redherring.com, September 18, 2000 Check out the new FOCB Index! To get this column sent to your inbox, subscribe to the email newsletter. It's always embarrassing to catch onto a hot fashion trend a little too late. Nobody likes a poser. Anyone who bought his first Nehru jacket in 1970 wasn't exactly a trailblazer. And if you just started wearing plaid shirts and Doc Martens in 1994, then you most certainly would have been labeled a grunge wannabe. You'd think that embracing a fad a little later than everyone else would be equally taboo for publicly traded companies, but the funny thing is, investors often reward latecomers with lavish pops in their stock prices. And it's usually for no other reason than the fact that the company was smart enough to include the hot buzzword of the day in its press release. The latest example of this type of investor insanity took place on September 7. Read-Rite (Nasdaq: RDRT), a company in the not-so-glamorous business of making magnetic recording heads for disk drives, proclaimed to the world on September 6 (after the closing bell) that it had formed a new optical components company called Scion Photonics. Read-Rite's stock soared as much as 45 percent the next day on this announcement, closing with a 35 percent gain. BANDWAGON, BABY Now everyone knows that the optical area is hot. Any IPO with an optical angle to it has taken off in the last few months. And companies like JDS Uniphase (Nasdaq: JDSU) and its merger partner SDL (Nasdaq: SDLI) have been spectacular performers over the past 52 weeks. But what happened with Read-Rite is ridiculous. Not every optical component or optical networking company is going to succeed. Read-Rite is entering a highly competitive market, and considering that the company lost money last year and analysts are projecting it will continue to do so this year and in 2001, why should investors be willing to put so much faith in this new business? In fact, recent stock market history shows several examples of companies that have soared after announcing that they were hip to the latest tech trend, only to fall dramatically once the hype subsided. SHIFTING STRATEGIES Remember the autumn of 1998, a most giddy time for e-tailers? Amazon.com (Nasdaq: AMZN) was everyone's favorite stock, especially Merrill Lynch analyst Henry Blodget's. In November 1998, book retailer Books-A-Million (Nasdaq: BAMM) decided to throw its hat in the e-commerce ring. The company put out a press release November 25 saying merely that it had launched an "enhanced website" and the stock shot up nearly 200 percent that day and another 200 percent the next day. The stock peaked on November 27 at $38.94. It now trades at $3.13. Two tiny banks saw their stocks surge in the spring of 1999 after they put out press releases to sound off about their new online banking services. Florida Banks (Nasdaq: FLBK) jumped 270 percent in April of 1999 after its online banking press release. The stock hit a peak of $31.25. Its current price? $5.75. Atlantic Bank & Trust, which has since changed its name to Capital Crossing Bank (Nasdaq: CAPX), soared 270 percent during the week after it announced its online banking plans. The stock hit a zenith of $41.13 and now trades at just $9.13. Notice a pattern here? LINUX, EH? E-commerce and online banking haven't been the only investor fads. Last year could have been dubbed Love in the Time of Linux. Monstrously successful IPOs from Red Hat (Nasdaq: RHAT) and VA Linux Systems (Nasdaq: LNUX) had Wall Street frothing at the mouth for more open-source-related stocks to scoop up. Enter Corel (Nasdaq: CORL), the Canadian software company best known for its CorelDraw graphics software and an ill-fated decision to buy WordPerfect. Last fall, Corel started to issue countless releases about its CorelLinux operating system and WordPerfect for Linux software. Investors took the bait, conveniently ignoring the fact that Corel was losing money and burning through its meager cash supply at a rapid rate, and the stock skyrocketed nearly 430 percent in about a six-week span. Corel traded as high as $33.03 during the peak of penguin passion. But now Corel is trading under $4 following its aborted merger with Inprise/Borland and the resignation of its founder and CEO, Michael Cowpland. And I'd be remiss if I didn't mention one more example of investors falling prey to corporate shape-shifting. In March of this year, a company called Jackpot Enterprises (NYSE: J), which operates slot machine routes in Nevada, decided to exchange one form of legalized gambling for another. It announced it was becoming an Internet incubator and would change its name to J Net Enterprises. Investors giddily drove the price of the stock up 50 percent the day of the announcement as visions of the next CMGI or Internet Capital Group danced in their heads. Well, we all know what has happened to Internet stocks since March, don't we? Look out below! Jackpot hit a high of $21 on March 8 and now trades at just $10.44. PATIENCE IS A VIRTUE My gripe is not necessarily with the decisions these companies have made. There's of course nothing inherently wrong with a book retailer deciding to start an e-commerce operation or a bank offering online services to its customers. (Although I must admit I'm still scratching my head about the slot-machines-to-Internet-incubator strategy shift.) And why shouldn't Read-Rite try and get into the optical components business? It already has a wafer fabrication facility that it can use for some of the manufacturing. But there is absolutely no reason why a stock deserves to go up as much as Read-Rite did -- or any of my other examples -- simply because of a new product initiative. That's completely nonsensical. To be sure, there's supposed to be an element of risk in investing; you are, after all, betting on a company's future. But there is a huge difference between announcing a change in corporate focus and actually successfully implementing the new strategy. I could easily claim that within the next 12 months, thanks to a strict personal fitness regimen and some surgical enhancements, I will be more physically attractive than Tom Cruise. But don't you think it would be really stupid if Nicole Kidman decided to leave her husband for me based solely on this promise? Investors should never buy a stock just because a company has announced grand plans to enter whatever has become the new tech flavor of the month. Wait and see if the plan actually has a chance of working instead of getting caught up in the hype. FOCB INDEX WINNERS AND LOSERS The FOCB Index had another rough week, falling 5.2 percent since my last column as the tech sector overall took it on the chin. In fact, only six of the fifty stocks have gained ground in the last week. But the FOCB Index is still up 9.2 percent since its July 31 inception, more than double the Nasdaq's 3.9 percent gain during the same period. The index's biggest percentage gainer was e-business software maker Vignette (Nasdaq: VIGN), which increased 9.9 percent, curiously on no news. Vignette competitor Broadvision (Nasdaq: BVSN) was one of the week's biggest losers, falling 12.9 percent. The laggard of the week was Echelon (Nasdaq: ELON), which fell 13.9 percent after gaining 18 percent the week before last. Finally, FOCB constituent Oracle (Nasdaq: ORCL) kicked off earnings season on Thursday with better-than-expected earnings on Thursday. On tap for the week of September 18 is CMGI (Nasdaq: CMGI), which will report its fiscal fourth quarter numbers after the bell on September 21. First Call analysts are expecting a loss of $2.45 a share on $278.3 million in revenue.