Tech Stocks' Big Buyers Look for Reasons
Not to Sell
By Eric Auchard
SAN DIEGO, Calif. (Reuters) - The fall American Electronics Association
investor conference is supposed to be the high-tech stock world's equivalent
of a beauty pageant.
This year, it turned out looking more like the scene of a bloody car crash.
The ``AeA Classic'' held in San Diego over the past week is where hundreds
of promising firms come each year to be discovered by Wall Street. In the
folklore of tech investing, it's where November rallies get started.
As in years past, there was innovation aplenty this time: ultra-clear flat-panel
screens, superconductors for smarter wireless antennas and all the latest
twists on hot topics like networked storage, Web systems management and
semiconductors for high-speed communications.
But in uncertain economic and political times, with signs the tech sector's
recent spectacular growth rates are slowing, the 300 companies selected to take part in this year's AeA event
had a hard time getting their individual messages heard.
``People are worried where the near-term catalysts are for these stocks,'' said Jennifer Jordan, a Web software
analyst at brokerage First Security Van Kasper in Portland, Ore.
All 300 companies participating in the AeA conference are small or mid-sized, generally ranging from under
$100 million to about $1 billion in terms of market capitalization.
``A lot of these companies went public and stumbled,'' said Lou Mazzucchelli, an investment banker with
Gerard Klauer Mattison & Co., referring to stocks that may have once traded above $100 but now go for
under $10 or $20.
``You couple that with the depressing macro (economic) environment and you find a lot of zombies here,'' he
said.
Fully three-quarters of the 300 companies taking part in the ``AeA Classic'' lost ground by week's end -- some
as much as one-third of their market value. The losses compounded declines of anywhere from 50 percent to
90 percent that the stocks have suffered in 2000.
AeA CLASSIC HIGHLIGHTS PROMISING SMALL STOCKS
In a season thick with technology conferences and company meetings with analysts, the ``AeA Classic,'' now in
its 30th year, is known for showcasing undiscovered small- and mid-cap firms that go on to become next year's
big stock market winners.
The AeA's reputation relies to some extent on its timing. Statistically, the six months between November and
April have proven over the past decade to be the best time to hold technology stocks.
``Buy on the AeA and sell on H&Q,'' the traders' wisdom goes. That means investors should buy stocks in
November and hold them until the spring, when investment bank Chase H&Q, formerly known as Hambrecht
& Quist before it was bought by Chase Manhattan Corp. (NYSE:CMB - news), hosts its own huge investor
conference in May. Tech stocks tend to subside for the slow summer months.
Coming at the start of this seasonal cycle, the ``AeA Classic'' functions as a wellspring of new investment ideas.
``It's not so important what the individual companies say. It's what the mob here thinks. It's the buzz that's
created about what sectors are hot,'' said Ed Leonard, a managing director at merger advisory firm Broadview
Associates.
Some of the much talked-about stocks this week included:
-- Applied Films Corp. (NasdaqNM:AFCO - news), which with a recent acquisition, supplies the equipment
used to make a range of high-resolution flat-panel screens. Austin Lewis, of the Richmond, Va.-based Lewis
Small Cap Fund, calls it ``the Applied Materials of the flat panel industry,'' referring to the leader of the wider
semiconductor equipment industry.
-- Pixelworks Inc. (NasdaqNM:PXLW - news), which develops software as part of an all-in-one chip that
enables graphic-rich images to be delivered to handheld computers, flat-panel screens and televisions.
-- Tekelec (NasdaqNM:TKLC - news), a supplier of software used to control the core of telephone networks,
is making strides into new wireless networks.
-- Emcore (NasdaqNM:EMKR - news), a maker of liquid-emitting diode (LEDs) devices, is doing so well that
``business is booming,'' said Richard Mashaal, president of Senvest International LLC, a money management
firm in New York.
Approximately 100 of the companies participating in the AeA conference arranged to have their 45-minute
investor presentation broadcast over the Web. The audio presentations can be heard at vcall.com.
When Buying Season Becomes Selling Season
These are difficult days to be a technology buyer, even among the iron-gut small and mid-cap investors from
funds such as Fidelity, Putnam, and T. Rowe Price, who show up to interview companies here.
Adding to an already difficult environment, Cisco's earnings report on Monday stoked fears that a massive
build-up in components and finished products concealed a slowdown in some sectors of the communications
market.
Pip Coburn, global technology strategist for investment bank UBS Warburg, has grown increasingly pessimistic
that investment conferences, trade shows, and analysts' briefings by key companies can supply enough buzz to
revive the tech sector.
``During the next two months, looking for stock drivers will be a challenging task,'' Coburn wrote on Friday in a
weekly report he publishes on the sector.
He sees little boost coming from major upcoming events such as Comdex in Las Vegas, Semicon Japan, the
Western Cable show in Los Angeles and analysts' meetings by Micron Technology Inc. (NYSE:MU - news),
Nortel Networks (Toronto:NT.TO - news)(NYSE:NT - news), Alcatel(CGEP.PA) (NYSE:ALA - news),
Nokia Corp. (NOK1V.HE)(NYSE:NOK - news) and Cisco Systems Inc. (NasdaqNM:CSCO - news).
``Investors will travel from investment conference to conference and the mood will grow more skeptical,'' he
predicted.
Still, Jordan of First Security Van Kasper said she and other stock pickers keep making the effort, using events
such as the American Electronics Association conference to find stocks which, when the tech sector's storm
clouds lift, will produce outsize gains.
``There's a general sentiment that when people feel more confident about the economy, these stocks will really
take off.''
Just be prepared to wait. |
