Bottom Feeding
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Monday March 19, 12:05 am Eastern Time
Forbes.com
By John C. Dvorak
<<With the downturn in the stock market compounding last year's miserable performance, conservative investors are sitting on a gold mine--if they can pick some collapsed technology stocks and run them back up to where they belong.
Even when the pace slows, many of these stocks maintain a high growth rate relative to older sector stocks. But, oftentimes, expectations for continued growth go beyond reality and the stocks get overinflated. This was the case until last year, when a reevaluation took place in April and again in October. Now is the time to follow some of the depressed stocks. With the aid of charting, and a daily regimen of examining the action of these charts in a down market, it's possible to get in near the bottom price of many excellent companies.
I have personal favorites that I've been watching. I should point out that I'm more of a technician than a fundamentalist. I like to use the fundamentals to isolate a stock, then the technical data to determine if the stock should be traded. It also helps if there is a buzz in Silicon Valley about the stock; that show of interest indicates a chance of a runup.
The stocks I'm following to the bottom:
Cisco Systems: During its phenomenal decade-long runup, this company has leveraged its position and value to acquire much of its competition and many important new technologies. The price has recently collapsed and a look at the charts is frightening. There is nothing to prevent the stock from falling further, but the fact remains that Cisco is in the catbird seat in almost all aspects of high-speed communications, and it's the gorilla in networking technology. This isn't going to change, regardless of what the stock does. But I wouldn't be surprised to see the share price drop to $10--it's below $20 now--before this debacle is over. I'll buy this stock for my kids at that price and leave the money there.
WebVan: Having started at the top, let's look at the bottom of the tank. I actually invested in WebVan when it was at $6 and all the analysts rated it a ``strong buy.'' I sold quickly thereafter, when the charts told me to get out for good. I never liked the idea of grocery delivery, but admired the dedicated customers. I even tried the service once, and the employees were sharp and effective. I have concluded that WebVan does serve a need, particularly in the time-constrained high-tech community. If this stock ever turned around, it would be a great speculation. But its charts also indicate more downside weakness. I'm just watching for something to change. This is a long shot, but worth keeping tabs on.
Telescan: This is a company that I like, which has a subdollar stock. I pay for its service, Wall Street City. Most smart companies use the Telescan system for financial data; it provides Forbes.com with up-to-the-minute stock prices and charting capability. WallStreetCity.com has all sorts of features, including incredibly elaborate searches for stocks based on various technical indicators and breakouts. It's a fabulous system and I'm just waiting to buy the stock, recently trading at 94 cents. Right now, Telescan's own technical indicators are all sour but, long term, if this company isn't a winner, then nothing is. I like this stock anywhere under a dollar, but 50 cents per share looks like an eventual sure bet.
Wind River: This company, which dominates the embedded-systems business, is a fascinating stock to trade if you can catch it in an up-and-down rhythm. This was easier to do last year, when the charts gave good indications of movement. Since then, though, the signals have been unclear, making the stock unattractive for short-term fun. Still, this company knows its business; its chairman, Jerry Fiddler, is the so-called Father of Embedded. Cynics in the valley always cite embedded Linux and Microsoft's various embedded initiatives as a serious threat to Wind River. I see Fiddler every so often and he seems rather nonplussed by the competitive threat. I like this company. I'd love to see the share price at $15, but it may keep fluctuating between $25 and $35 in a random pattern.
Gateway and Dell Computer: Here are two interesting companies that I think are the best at producing good PCs at reasonable prices. Dell is the Lexus of desktops, making fast, reliable machines. Gateway is not far behind. It was obvious here in California that these companies were in for a rocky year. All over San Francisco, as various dot-com companies formed overnight, they were loading up with Dell and Gateway machines. Sidewalks were clogged with boxes. How many of these machines were actually paid for? Compound this with the failure of newer processors to impress users who find that a 450-megahertz computer seems as fast as the more expensive gigahertz machines. I'd like to see both stock prices go lower. Gateway is trading at a recent $14.60 and Dell is a recent $24.03.
PMC Sierra: This is one hot little company that makes telecom and other integrated chips that everyone wants and uses. This company grew so fast and people liked it so much that the ludicrous price-to-earnings (P/E) ratio was targeting 1000, and is now down to a mere 90. In this market it seems that a 90 P/E ratio cannot be sustained, no matter how good you are. So even though this is a potential $200 stock selling for $35, I'm keeping an eye on it, hoping it gets down to $17. Wishful thinking? We'll see. The stochastics are starting to improve and the lower Bollinger band is finally starting to rise. There's a chance it may not be able to go that low. Watch this one closely: When it moves, it moves fast.
These and other stocks should be monitored daily. This market will turn out to be a bonanza for the investor who follows stocks to the bottom and picks them up cheap. I see no reason to rush.>>
Great to have you back on the porch Dealer...=)
Best Regards,
Scott |
