Too Soon to Tackle the Tech Wreck -- 2:00 PM EST
by Dan Dorfman
NEW YORK (JAGfn.com)--The message is loud and disturbingly clear.
As tempting as they look, it's still too early to scoop up the beaten-up technology stocks, several
Street pros tell me.
Sure, there may be a nice bounce now and then, as there is today, which could encourage some
buying, they say. But any sustainable rise, they feel, is unlikely at this juncture.
Typical of such thinking is money manager Tom Postin of Los Angeles-based P&W Partners.
Postin says he is itching to buy what he believes are a number of technology stocks that he
believes have hit bottom or are very close to it.
The problem, he tells me, is that what looks cheap has a lousy habit of getting even cheaper.
Postin speaks from experience, having recently bought Cisco Systems (CSCO), 52 7/16, EMC
(EMC), 85 1/8, and IBM (IBM) 100, all of which now sport lower prices than he paid for them.
"It looks like I may be premature, that it could be too early to play the tech wreck," he says.
When will it be the right time?
Postin thinks a couple of catalysts could get the techs cracking again, either a resolution to the
Presidential election or better-than-expected numbers from some industry leaders.
Clearly, today's rally in the overall market, as well as in tech stocks, are benefiting from a
widespread view that an official Bush win could be close at hand.
But, as Postin sees it--and he is not alone--there's no guarantee that legal proceedings won't throw
a monkey wrench into such a scenario.
At the same time, Postin says some tech analysts have suggested to him that some earnings
warnings could be on the way.
Investors' reaction to Wall Street's stepped-up research reports on a variety of bloodied tech
companies tends to bear out the view that a hands-off approach may still be the best approach.
Granted, the market recently has been a bummer, given a slowing economy, a slew of earnings
disappointments and uncertainty surrounding the Presidential election. Likewise, most tech stocks
have been under intense selling pressure.
Still, when premier brokerage research pounds the table for its top tech picks, one would assume
that its stock pitches-which are often accompanied by either "buy" or "strong buy" ratings-are likely
to have, at least occasionally, some positive effects.
Alas, such positive impacts are becoming increasingly rare, if not invisible.
Take, for example, three stock recommendations that were made within the past two weeks-Nov.
15 and Nov. 16, to be precise-by the influential Montgomery Securities division of Banc of America
Securities. Each was featured in a bullish research report.
What a bunch of lemons!
On Nov. 15, Montgomery recommended institutional darling EMC at 89. So as we see from the
price quoted above, the stock to date is down.
The very same day, Montgomery also touted QLogic (QLGC), which was then trading at $121.13.
It's currently 104 3/4.
A much bigger loss was recorded in another tech recommendation that was made the following
day.
The culprit here was Openwave Systems (OPWV), which was recently formed through a
combination of Phone.com and Software.com. It was recommended at $88.88 on Nov. 16 when it
was known at Phone.com. The stock, which has fallen out of bed, is currently trading at 57 1/4,
down about 35%.
The reaction from a Montgomery analyst: "We're not magicians. These are not great times for the
market. Technology will come back, but don't ask me when."
To be fair to Montgomery, its research staff is not alone, as I indicated above, in pitching one tech
disaster after another.
For example, on Nov. 9 Robertson Stephens recommended Internet Capital Group (ICGE) at 16 1/4.
Since then, the stock has lost more than half its value given its current price of 7 11/16.
If there's a message from all of this, for now at least, as you see from Postin's recent purchases, be
wary of Street research pitching tech stocks. It can be risky to your financial well-being.
Who knows? For now, maybe analysts should push dog perfume rather than tech stocks.
Why so?
Because of the booming business that Saks Fifth Avenue, one of New York's premier department
stores, is experiencing on perfume for fido.
That perfume, directly from Paris and called Oh My Dog, is barking up a storm.
A Saks spokeswoman tells my colleague Amie Guentner, that the perfume, which runs $38 for 3.4
ounces, is doing "fabulously well" and is generating sales of between $1,200 and $1,500 a day.
If you're a dog lover and $38 seems too rich, there's also Oh My Dog shampoo for just $20.
* * *
Checking out of CheckFree
Speaking of technology stocks, the folks who track insider activity at Thomson Financial find that
insider selling in the tech sector, given its poor stock performance and with no end in sight, has
slowed appreciably.
However, this is by no means the case at one tech company, CheckFree Corp. (CKFR), 53 1/2,
whose insiders have continued to unload their shares since the stock plunged 70% in March and
April.
In fact, not only have insiders continued to sell, some have actually increased their selling.
Recently, for example, five insiders, including chairman and CEO Peter Knight, filed their intent to
sell just under 202,000 shares. Almost half of this stock, 100,000 shares, is being sold by Knight.
It's the kind of selling, as I later document, that should disturb any of the company's shareholders.
Oddly enough, the selling comes at a time when things seem to be going very well at CheckFree,
which develops and provides electronic billing and payment services and related products.
The positive tidings: company rivals continue to struggle to gain market share. Further, the
company has a new alliance with Bank of America (BAC), 39 5/8, to provide electronic billing to the
bank's 3 million online clients.
Given what it sees as Street optimism and positive news, Thomson says it's alarming to see
insiders selling again at prices nearly 45% off the year's high. Actually, if you factor in the 52-week
high of 125 5/8, the insiders are dumping stock at about 60% below its recent high.
Interestingly, two of the five CheckFree insiders are selling 55% and 95% of their holdings, hardly a
vote of confidence in a company that's supposedly doing very well.
Equally interesting, three of the current sellers also sold in February and March, just prior to the
stock's plunge.
Who Knows? Maybe they see or know something that isn't apparent to the investment community
at large.
* * *
Latest Street Odds: Bush up to 5 1/2 to 1
Seymour Tepper e-mails me the following: "As someone who is enamored of politics almost as
much as I am of the stock market, I was fascinated by your recent comments on Wall Street
betting on the presidential election. I voted for Bush, but I couldn't believe, as you wrote, that he is a
3-to-1 favorite in the betting odds. Such odds seem to ignore that Florida's ballots are still subject
to change even though Bush has been declared the winner in that state, as well as the legal tug of
war that lies ahead. I am not a big-time gambler, but if I wanted to put down $25 tops on Bush, how
would I do it? Also, what are the latest odds?"
Seymour, the odds change in line with changing events. An associate of a broker at a large
securities firm who sort of acts as a bookmaker and encourages bets on the election by Street
professionals, tells me the odds on Bush have risen. He says the Texas governor is now a 5 1/2 to
1 favorite.
Sorry, Seymour, but your $25 bet won't fly. The minimum bet, at least with the broker I've referred
to, is $1,000, or in this case more than that if you want Bush. In other words, to bet on Bush, you
would, as of now, have to ante up $5,500 to win $1,000.
The way it looks now, a bet on the election may well rest on how skilled the bettor is in assessing
the law, or in this case the likely actions of the U.S. Supreme Court.
* * *
Stock Funds Struck by Selling
Cash outflows are hitting the mutual fund industry amid increasing nervousness among investors.
Charles Biderman, editor of the Trim Tabs Newsletter in Santa Rosa, Calif., estimates that stock
mutual funds suffered an outflow of $3.3 billion over the four days ending Wednesday, Nov. 22,
compared with an inflow of $600 million during the previous week.
Equity funds that invest primarily in U.S. stocks experienced an outflow of $1.9 billion, compared to
a zero outflow the prior week.
Meanwhile, international equity funds had an estimated outflow of $1.4 billion, compared with an
inflow of $700 million the prior week.
On the plus side, Biderman estimates that cash reserves of U.S. stock mutual funds top 5.5% at
the end of October, verses 5.06% at the end of September. Translated into dollars and cents, he
figures that U.S. stock mutual funds are sitting with cash of about $196 billion, which, he notes,
could easily help trigger a major rally. |
