1. WALL STREET CHANGING ITS TUNE ON INTERNET STOCKS
There is a change occurring on Wall Street concerning Internet stocks that
have big promise but no income. We have been watching it for months but
have been afraid to admit it to ourselves. We have been fighting it tooth
and nail but we are losing money and we're not happy about it. The
Internet revolution is slowly dying out. What we mean is not that the
Internet has stopped growing. It hasn't. It is still exploding and we
expect to see no letup in this space as audio and video continue to
consume bandwidth and disk space. What we DO see is Wall Street's
impatience with companies that are not making money. Priceline is the
latest example and we discuss this below in a separate article (#4) in
depth.
We are most worried about Amazon. We have been heavy backers of Amazon
(AMZN) ever since we heard about the company in 1998. We added it to our
Internet Portfolio in July, 1998 at $19. We liked the company and
believed in the concept. We watched it go to $80 by the start of 1999 and
then to its all-time high late in the year. And we have watched it drop
from that peak to $30 in late July of this year.
We have gone along with the company line and have been waiting patiently
for them to produce profits. Their 20 million+ customers are propelling
the firm to new highs in revenues, but profits are still elusive. The
latest word from the firm is that this will happen in 2001. There's just
one problem: Wall Street isn't waiting with us. We looked at the stock
earlier today at $38 and said to ourselves that if it hits $34 we are
going to have to sell. By 3 PM the stock had dropped below $35, due to a
weak Nasdaq and the Priceline fallout, but rallied to close at $38, down 2
for the day.
So, we are putting in a GTC stop at $34 and if it hits, we are selling.
We hate to say this, but with $2.1 billion in debt, less than $1 billion
in cash, and losses of $625 million in the last six months, the stock
could trade at the same price Priceline is trading at ($11). Wall Street
has no interest in fast-growing Internet stocks now, so we will have to
realign our portfolios into the conservative Capital One's (COF, $69, up
2) and the Citigroup's (C, $51, down 2) and look for other home-run stocks
to replace the Internet stocks.
We are very concerned about our other Internet stocks in our portfolio.
If what we are seeing continues, there is going to be a bloodbath and we
don't want to be a part of it. Sure, we are long term investors but there
comes a point where the pain is just too great. Below are our pain points:
We are placing GTC sell stops in the following stocks:
RealNetworks (RNWK, $36, down 3) $32 stop.
CheckFree (CKFR, $38, down 2) $35 stop
Exodus (EXDS, $53, down 3) $49 stop
This is painful stuff because the firms are doing so well. Exodus just
hit $69 in early September and CheckFree hit $70 in late July and is
signing up new customers like there is no tomorrow. But enough is enough.
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6. FEATURED PORTFOLIO OF THE WEEK -- DATA COMMUNICATIONS
LUCENT TECHNOLOGIES
By Daniel Fisher
Daniel@Bull-Market.com
Lucent Technologies (LU $29, down 2) is well positioned to regain its
leadership in the communications equipment sector. Whether the network is
wired, wireless, local, long-distance, data, or video, chances are Lucent
Technologies is providing parts or services for it. The company has seen
its market cap more than cut in half within the last year, as it traded
from a 52-week high of $84 down to yesterday's close of $29 (a 52-week
low). The current trading level reflects a classic buying opportunity for
the long-term investor.
Today, Lucent announced agreements with China Unicom (CHU, $22, unch.)
totaling $14 million, and Fujian Mobile Communications totaling $8.8
million. Earlier this year China Unicom awarded contracts to Lucent
totaling $50 million. We feel that the current contract award is a stamp
of approval from China's second-largest telecommunications service
provider. Fujian Mobile is the ninth 10G customer Lucent has signed on
since the spring launch of its 'Wavestar' product line. (Lucent's 10G
'Wavestar' system uses a single laser to transmit ten gigabits of
information per second). Fujian Mobile is one of China's first mobile
service providers to build its own transmission networks, and Lucent's 10G
products will give them the ability to transmit one million wireless calls
simultaneously.
On a more local front, Global Crossing (GBLX, $30, up 2) and Lucent have
initiated testing of a high-capacity, all-optical switch that is part of
Lucent's 'Wavestar' product line. Wavestar's All-optical LambdaRouter
uses microscopic mirrors to instantly direct and route optical signals.
This is done without converting signals to electrical form, as in today's
method. The two companies see Lucent's LambdaRouter as a critical
component to Global Crossing's next-generation, all-optical network that
will span the globe by connecting 200 cities on five continents. This
will allow Global Crossing to offer a vast array of services to network
providers. 'Point and Click Wavelength Positioning' may be the most
sought-after advantage of the new LambdaRouter. It allows network
providers to redistribute bandwidth to areas of their network that require
an additional amount. It appears Lucent 's Research and Development
(R&D), and Global Crossing's build-out expenses are both behind them. We
would look for the success of this network to have a positive impact on
BOTH companies' bottom lines.
>From a technical standpoint, Lucent is trading below its 10, 50, and
200-day moving averages. Relative Strength, Volume, and Chart Patterns
all indicate this company is not being accumulated. Even so, we take the
contrarian stance on this one, and feel that Lucent is trading at a very
attractive level.
Lucent is developing and marketing great products for advanced optical
networks. It is our opinion that despite the company's depressed stock
price, Lucent has, and will continue to have, cutting-edge communications
products. While R&D costs have recently offset higher sales, it appears
the majority of Wavestar's R&D costs are behind them. This leaves Lucent
in an excellent position to profit from the growth of the world's
next-generation, all-optical networks.
Not convinced? Then we would suggest setting a buy stop in the $35 range.
This would ensure that Lucent was clearly on the right track before you
bought. As for The Bull Market Report, we are buying at these levels.
Editor's Note: In other news, Lucent is all set to spin off its $8
billion enterprise division, Avaya Communications. The new company will
become one of the premier providers of technology for operator call
centers and corporate campuses. The spin-off will take place on Sept.
30th (this weekend) for all shareholders of record on Sept. 20th, and will
be paid in the form of a special stock dividend. Under the terms of the
plan, Lucent shareholders will receive one share of Avaya common stock for
every 12 shares of Lucent that they currently own.
The Avaya unit is involved in the slow-growing traditional communications
business, and Lucent is looking to position itself as a new-age firm
providing equipment to power the Internet revolution. You may wish to
sell these shares on Monday and reinvest in more Lucent shares. We think
you'll be rewarded over the long haul.
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"Source: The Bull Market Report www.Bull-Market.com." |
