Zain ..note this carefully.....
Like the semis article learn this one by heart.. know this industry well and know it well that most of this industryis severe downturn but I think happy times are for those who are able to position in this downturn..
Ed Hecht
Optionetics.com
Imagine this: You're on "Who Wants to be a Millionaire," and Regis asks for a technology sector that's been beat up pretty badly, yet still has one of the strongest outlooks for the future. Would you need to call your lifeline?
After monster-sized run-ups in just about everything tech-related over the last year, marquis names are getting their lights knocked out one after the other-Intel, Apple, Applied Materials, Xerox and more-and chances are, if you own a basket of 20 individual stocks, you've either taken a direct hit or a sympathy blow (the company you own didn't take the hit directly, but got felled by association).
Still, there are sectors that, while taking a beating in the current environment, show incredible promise for the coming years and offer tremendous bargains at current valuations. That is, if you are a patient investor and have the intestinal fortitude to "pull the trigger" when it seems everyone is running for the hills.
Telecommunications is one of my favorite sectors. Why? Because telecommunications is at the heart of the information age. Never before have so many people earned such a prosperous living with so little physical exertion, or had such mobility in doing so! Today's commerce engine runs on the purchase and re-sale of information. Take a closer look at what companies like Oracle, Sun, Intel, and EMC do. Well, of course they sell products, but those products are simply a means of processing and storing information! How is this information moved about? Through networks-everything from Local Area Networks (LAN's) to Wide Area Networks (WAN's) to Virtual Private Networks (VPN's) to the ultimate network, the Internet. It all points back to telecommunications-moving information from one point to another!
As pervasive as the Internet seems in our lives, only a surprisingly small segment of the population actually uses it-something on the order of just 10%. This ought to spell out the words "upside potential" to the savvy investor. It's like the story of the two shoe salesmen who visit an undeveloped country at the turn of the century. One of them wires back that almost no one wears shoes and he wants to return home. The other wires back that almost no one wears shoes and that he needs a boatload shipped right away, as the market is wide open! The difference comes down to where you think the industry is heading.
I happen to be a telecommunications Bull. I'm a very heavy user of the Internet, cell phones, hand-held devices, and anything that can allow me to communicate better with my colleagues and friends. OK, truth be told, I'm bullish on anything that can allow me to do business on a ski lift, on the beach in Florida during winter, or while driving a golf cart! Can I be that different from everyone else in the business world? I think not!
Realizing that the nature of Corporate America is changing-witness the increase in telecommuting, video conferencing, smaller and smaller PC's and hand-held devices to give us that mobility I pointed out-the task for the investor is to peel back the layers of the onion to find the investment opportunities these demographics point to. What it leads me to is the infrastructure that supports these devices-the networks they run on, as well as the service providers that operate the networks. In other words, pics and shovels and those who operate them.
During the Gold Rush of 1849, a European immigrant named Levi Strauss found contentment in supplying blue jeans and tents to prospectors. Most of the prospectors eventually spent their savings and went home poor. A few did prosper. Today, the only name we remember is Levi's. There's a lesson to be learned here!
So, how do we apply this to the current market we're in? First, a word about the cyclical nature of the telecommunications industry. The fall is typically a tough season for the companies in this group. Money cycles out of this sector as fears about revenues and spending grip the market. Now, applying it to the troubles in the broader market, we end up with a list of players that are just getting pummeled!
Let's look at some names: on the equipment side we have Cisco (CSCO), Lucent (LU), and Nortel (NT)-the Big 3-all well off their highs. True, Lucent has had its share of blunders of late, yet who would have expected the stock to reach $30/share? Other equipment manufacturers taking it hard include JDS Uniphase (JDSU), Digital Lightwave (DIGL), ADC Telecom (ADCT), and just about everyone in this sector (even Ciena (CIEN) and Corning (GLW), the golden children of late, have fallen in recent sessions!). On the service provider front there are companies such as AT&T (T), WorldCom (WCOM), Sprint (2 divisions, FON and PCS). In the broadband infrastructure group there's Qwest (Q), Metromedia Fiber (MFNX), Level 3 Communications (LVLT), and others. Handset companies include Nokia (NOK), Ericsson (ERICY), and Qualcomm (QCOM).
At the moment most of these companies are quite far below their 52-week highs, some as a result of fundamentals, and some as a result of sentiment in the overall market (and exacerbated by sentiment in the sector). As a group, however, these companies I've listed (randomly, mind you, not as a recommendation to buy or sell) are representative of the kinds of firms that will continue to make the telecommunications revolution-wired and wireless-broadband and narrowband-possible.
My recommendation to you, if I do indeed have one, is to get to know the companies that comprise and enable the telecommunications industry. Learn about the different segments of the market, as I've touched on here. We may all have a golden opportunity in front of us once the market begins moving upward again, brought on by the fact that some of the fluff has been knocked out of the valuations in this sector, and most analyst predictions for this market as a whole are quite positive over the next several years.
Optionetics.com and George Fontanills are regular contributors to MarketMavens.com. |
