My bullish spin....
The good news: Value is everywhere....
Iqbal Latif.. London 11th April 2001.
We've been through this before--in 1974, 1994 and most recently in 1998. Last time in 1997-98, those who
loaded up on a handful of the world's most dominant technology companies at crazy-cheap prices did well. In 1997 when I was calling IBM long and CSCO long, the fashionable thing was to 'short these great companies.'
At this point, we are seeing technology companies at prices we thought that we would never again be seen.The
bulls lament downturns, when they should welcome them as an opportunity to grow value and to profit all over
again. In markets 'time' is of essence, if timing is right you would survive. You always see you levels but if time is on your side.
No one ever finds a bottom of the market, and one never place all his eggs in one basket. Once that is established a calculated risk can be rewarding in these very treacherous markets. Longs have the luxury of holding power on their side, the shorts are deviod of this great virtue.
Technology will continue to grow at four to five times the rate of the Old Economy -- even this year and in the second half we shall see that.
Despite what you're hearing in the media and from heavily dominated 'perpetual bears' sites who talk but have no trading guts, market researchers are projecting PC sales growth of at least 14-15%,semiconductor revenues up BY 25% BY 2002, cell phone sales jumping a whopping 37% BY 2002 and a leap in most end-user consumer products of 15%-20%.
The big technology companies will bounce back FIRST. After a year like 2000 investors are in no mood to
make bets on small, unproven stocks. They still want to profit from the fastest-growing industries--but
they want to do it more safely by buying the big, profitable companies.
Some on the Wall Street think that the current downturn has not ended and, with the spread of layoffs
to traditional manufacturing and service companies, there is no reason to think the fundamentals for the
technology industry will reverse soon. My bullish stance aside, it is not a time to assume we've found the
bottom and will simply start growing in a straight trajectory. These kind of corrections have double test of bottoms, however once these tests are established we do get excellent bounce ot higher levels.
Federal Reserve Chairman Alan Greenspan will do EVERYTHING in his power to avoid recession in 2001. Since January alone, he has made three separate, significant interest rate cuts, and it's painfully obvious Greenspan doesn't want to be blamed for sending the economy into a tailspin. Welfare of stock market and welfare of future surpluses are very much-intertwined phenomenon. The fall of one will lead to erosion of the other.
The fact is that what had gone up did certainly came back down in the wake warnings, poor quarterly
reports, fear. But the bears and the market were little too enthsiastic in selling htrough that 2800 area on Comp. By breaking through key critical support, and making stock prices cheaper than 1996. Nothing but positive surprises is a daily occurrence of this market. Yesterday Yhoo and LMRX results are one such reality and the poor results from MOT another, but we could have seen a lot more selling at these results had MOT trading at 40$ or LRCX at 45$ or Yhoo at 50$, with these results one thing is obvious that these very companies are ready to cut the coasts ands have managed this tech recession very well.
I think that one needs to focus on value in this market. If the market is assured of no recession and continued non-inflationary growth than I think that there's a monstrous BUYING PANIC coming.It will make people who are able to catch it very pleased.
Once investors realize where technology is really headed in 2001-2002 and beyond, there's going to be a MAD
DASH to pile back into the stocks as quickly as possible. Most investors will be too late, and they'll
wind up kicking themselves once again as they miss most of the NEXT BIG RUN UP. If one sees continuity of good 'economic reports' from US and earnings are better than expected, one needs to take a hard look at some of these technology companies.
Look at Advanced Micro Devices (AMD), already up more than 60% this year, which is still trading at just
seven times trailing earnings. Even when the downturn in semiconductor sales hits earnings in the next few
quarters, lowering earnings per share (EPS) by about half year-over-year, AMD will still be trading at 14
to 16 times earnings.
Sun Microsystems (SUNW), a company that will grow earnings at 30% to 40% annually over the next five
years, is trading at 22 times trailing earnings. Oracle (ORCL), a company that has had more than its
share of ups and downs over the past decade, is currently in one of its deep troughs. At 14.74 a
share, Oracle is trading at 12.31 times trailing earnings.
If you think any of these companies will disappear in the next decade, then, by all means, don't view
today's extraordinarily low prices as a chance to start building long-term positions. You'd be wrong,
but that's okay.
I think some positions in Sun and Oracle can be interesting, even as they fall further, because the
shares purchased today will be worth much more when IT spending picks up.
When an analyst comes out and says that 2001 could be the worst year ever for the semiconductor stocks,
perhaps it's a time for relief, rather than concern. Not that investors should necessarily rush out and buy
the sector, but when Lehman's Dan Niles states that revenue growth will fall 18% to 20% -- which would be
the most severe since a 17% revenue decline in 1985 -- it's hard to believe that the news can get much worse.
Against that grim backdrop, enter Intel (INTC). The stock rose solidly after Salomon analyst issued a buy
on INTC within 48 hours of Lehman's brothers downgrade.
The thrust and the contradiction of the two analyst is hardly new. Which side should the investor take?
Customer orders to Intel are slowing down and the potential of long-term contracts being renegotiated
are allowing inventories to grow and decelerating business -- both organic and new. Niles believes the
workout of the supply/demand conundrum could take two to three years. However, Solomon Analyst thinks that
semi-conductor have seen the worst and are ready for a rebound.
Some analyst think that 'it appears that the projected earnings for Intel have contracted yet again, with 2001 and 2002 fiscal numbers leveling at 65 cents and 70 cents a share, respectively. The projected price/earnings ratio with
the stock at $23.85 is 36 times for 2001, and for 2002, 34 times.'
That said, Salomon Smith Barney issued a "buy" rating on the stock with a 12-month target of $40. That was a joy kill for many a perpetual fashion shorts, those who talk but never trade. I hope that economic numbers today revitalise the concept of non-inflationary growth of US economy. That laone will help the market a lot. |
