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Technology Stocks : All About Sun Microsystems -- Ignore unavailable to you. Want to Upgrade?

To: techtonicbull who wrote (48901)	5/9/2002 10:12:05 AM
From: High-Tech East	Respond to of 64865

John Hussman commented on SUNW this morning: Thursday Morning May 9, 2002 : Special Hotline Update The Market Climate remains on a Warning condition. Except when the market is very overbought in a negative Market Climate, or very oversold in a positive Market Climate, I rarely have any expectation regarding short-term direction. It is not, however, unusual to see fast, furious rallies during negative Market Climates in order to clear an oversold condition. I would place Wednesday's rally in that category. While we still hold less technology and substantially less financials than the market indices, I do view some technology stocks much more favorably than I have in recent years. A number of telecom related companies remain worthless in my estimation, but a few tech stocks have finally approached the price/revenue valuations that I articulated in the January 2001 issue of Research & Insight (it's a fun letter to read in hindsight). I noted that Cisco was worth about $18 3/4, Sun Microsystems $4 1/2, EMC $10, and Oracle $6 7/8. Of course, at the time the market prices were substantially higher. For example, EMC was trading near $80 a share, coming off of a high of $105. Alan Abelson was kind enough to print that analysis, so I received my share of hate mail from a few Barron's readers ("... get out of the investment business..."), as well as some derisive comments by the guys on Squawk Box. I still wouldn't touch Cisco because I no longer trust its management, and because we calculate it as virtually worthless based on our measures of discounted free cash flow (Note to tech bulls: spare me the hate mail). I do consider the others appropriately priced here. (Note to tech bears: spare me the hate mail). All still fail to exhibit favorable market action or signs of persistent accumulation, but at least a few of the glamour techs are no longer absurd on a valuation basis. In short, technology is not out of the woods as a group, but the opportunities are increasing. Financials continue to appear vulnerable though, so a hedged approach that is light on tech and financials doesn't exactly do the Mambo when those groups lead the market over the short-term. Over time, however, our returns are driven by favorable valuation and market action across a wide range of stocks, and are not particularly dependent on the leadership (or lack of leadership) by specific industry groups. That said, it is important to emphasize that nothing in our measures of trend uniformity have improved. Specifically, I continue to view market conditions as precarious, particularly for large-cap stocks in the consumer and financial areas among others. Stocks such as 3-M, Citigroup, Bank of America, Merrill Lynch, American Express, Bed Bath & Beyond, Kohls, Home Depot, Lowe's, Target, Wal Mart, Procter & Gamble, Pepsico, Johnson and Johnson, United Health, and Tenet Healthcare all appear strenuously overvalued. This is a broad but certainly not exhaustive list, and the profile of overvaluation suggests that technology is no longer the real problem. The difficulty for the S&P 500 really is a blue-chip, nifty fifty type of overvaluation overhang that remains unresolved. In any event, we continue to be fully hedged based on the current profile of valuations and market action. This position does not require any forecast of market direction. The observable data is sufficient to keep us defensive for now.