Barron's : "Is it Deja Vu All Over Again for Techs ?"
Eric C. Fleming
Weekday Trader
(This item was originally published late Wednesday.)
NEW YORK (Dow Jones)Stocks have been on a tear since the market averages hit new lows following the September 11 terrorist attacks. And a familiar leader has set the pace: technology.
The Philadelphia Semiconductor index is up some 51% from its 52week low in September. The Nasdaq Composite index has rallied 32% from the year low it hit ten days after the attacks on the World Trade Center and the Pentagon.
"People are afraid of missing moves," says Sam Aybar, analyst at Denver Investment Advisors.
But money managers, well aware that the Nasdaq topped 5,000 last spring, are watching this run with a jaundiced eye.
"These are probably just trading rallies," says Derek Felske, portfolio manager of the Strong Technology 100 Fund.
Still, some big names have made some huge moves: Amazon.com has tripled from its 52week low on October 1 at 5.51; Dell Computer has risen 26% from its year low, and chip giant Intel has rallied 28% from its lows, too. (All remain well off their 52week highs, however.)
And shares of one former high flyer, Juniper Networks, have been partying like it's 1999.
Trading late Wednesday at 23, the shares have risen almost 160% since hitting their 52week low of 8.90 on September 27. (The stock, however, is still 89% off its 52week high of 221.75 last November.)
Juniper makes highend routers that act as a traffic light for Internet traffic. It's the kind of gear that was flying off the shelves from sales to corporations and phone companies until the music stopped late last year. Now, big customers like Qwest Communications are retrenching, causing demand to dry up.
The Sunnyvale, Calif.based company beat Wall Street's expectations by three cents a share in the third quarter, yet it warned that fourthquarter sales would be flat.
That may be one reason Juniper's big run hasn't impressed some money managers.
"We stepped out of [Juniper] a few months ago," says Link, who sees it as more expensive than its larger rival Cisco Systems, and would sell Juniper stock above 20.
After all, its valuation looks pretty steep. Juniper shares trade at 42 times Wall Street's 2001 consensus estimate of 53 cents a share and at 38 times the 45 cents analysts look for it to earn in 2002, according to Thomson Financial/First Call.
Earnings growth hasn't been gangbusters, either: In 2001 Juniper should report the same 53 cents a share it earned last year, and its earnings are expected to fall to 45 cents per share in 2002.
Juniper is trading at 1.4 times its projected longterm annual earnings growth of 30%. But that looks like a rosy estimate indeed, since analysts don't expect growth to kick in again until at least 2003.
Furthermore, Juniper is changing hands at almost eight times estimated sales for 2001.
Juniper isn't the only tech stock that's come back from the dead. At 46.97 Wednesday, QLogic has shot up more than 170% from its 52week low of 17.21 on September 27.
The Aliso Viejo, Calif. company makes infrastructure for Storage Area Networks (SANs) for customers like Sun Microsystems, as well as computer networking equipment, an area that has been hit hard by the disappearance of spending on information technology. No recovery is expected until 2003.
While QLogic did offer a few crumbs of hope by meeting Wall Street's expectations in its second quarter, Shebly Seyrafi, analyst at A.G. Edwards, cut his rating on the shares to Buy from Strong Buy, because he thought the stock was just getting ahead of itself.
"QLogic has a relatively full valuation in relation to its peers, and the broader market," says Seyrafi, who says the stock could be a Buy in the 30s.
Others are wary, too. "I wouldn't be buying [QLogic] here," says Ian Link, portfolio manager at the Franklin Technology Fund, which holds a 1.8% position in the stock. "We've been debating daily on whether to sell."
Truth is, the shares, though still 65% off last November's 52week high of 130.25, are no bargain. First, they're changing hands at a healthy 12 times trailing12months sales.
Also, QLogic is trading at 59 times the consensus earnings estimates of 80 cents a share for the fiscal year ending April 2002, and at 49 times the fiscal 2003 estimate of 96 cents a share, according to Thomson Financial/First Call.
That means they're selling at 1.8 times an optimistic projected longterm growth rate of 30% and at nearly 2.5 times Wall Street's estimated fiscal 2003 earnings growth of 20% and that's a long time away.
To be sure, the market for storage isn't dead. Gartner Dataquest expects sales of storage management software to grow to $16.7 billion by 2005, from $5.2 billion last year.
And some day, tech spending will come back strongly, probably sending technology stocks on a big, sustained move.
But not yet, which is why some savvy money managers appeared to have stayed away from this techstock rally, even though many tech stocks are well off their highs and appear cheapat least by the standards of 1999.
(END) DOW JONES NEWS 110801 |
