Tech bears' heyday may be ending
Commentary: But not before more pain
By Mike Tarsala, CBS.MarketWatch.com
Last Update: 12:11 AM ET June 12, 2002
SAN FRANCISCO (CBS.MW) - The two-and-a-half year tech market slide that's already taken $6 trillion from investors' accounts could come to a halt at some point in the second half, says Fred Hickey, one of the market's hairiest bears.
But not until investors lose up to an additional $2 trillion, says Hickey, who was one of the best prognosticators of market moves and individual tech stock performance over the past few years.
The Nasdaq Compaq ($COMPQ: news, chart) closed below 1,500 Tuesday - less than 75 points above its September trough. It's a foregone conclusion that the tech-heavy Nasdaq will soon crash to a new multi-year low, says Hickey, publisher of The High Tech Strategist newsletter.
What's worse for many investors is that Hickey projects that the steepest losses will be in shares of Dell Computer and several other well-known tech issues that some analysts are currently billing as safe havens from the market downturn.
"Dell-all the analysts love it," Hickey says. "I love it too - love their products. "It has everything I'd look for in a company, and everything I'd look away from in a stock. It has no growth, a price-to-earnings ratio of 35, and it's loved by all."
In addition to the valuation concerns, the computer maker (DELL: news, chart) could have trouble meeting sales targets for its June quarter. When Intel scaled back its chip sales targets this week, it gave a possible early indication of weak desktop PC sales.
What's particularly troubling is that Intel (INTC: news, chart) executives aren't projecting a back-to-school sales surge this year, and Dell is the leading seller of PCs to the education market.
Still, most analysts continue to adore Dell. Of the 29 analysts covering the stock, 17 rate it a "strong buy" or a "buy," while only 12 rate it a "hold."
Why? The majority of analysts are still instructing clients to pile into stocks of tech companies are taking market share from their competitors, according to Hickey. It's a strategy that doesn't' make sense when you ignore stock fundamentals. Analysts are instructing clients to buy top-performing companies, rather than top-performing stocks.
Hickey's comments shouldn't be taken lightly. He has a nearly flawless track record of exposing overvalued stocks in recent years. He publicly warned about Cisco (CSCO: news, chart) and other telecoms when shares traded at 100 times earnings. He balked at 50 times earnings and high revenue multiples on Microsoft, before shares fell.
Now, many of the big-name tech shares are at 30 or 40 times earnings. He's still making noise.
Hickey's market commentary has also been on the mark. In January 2000 he warned that the market was too high. He continued to keep a bearish outlook, but made some key buy recommendations just before the April 2001 rally. He selectively bought stocks in October, and sold months later at a profit.
The newsletter publisher has yet to call a market bottom, and says he won't until well-known tech shares approach more reasonable levels.
In addition to Dell, Intel is another of his targets. Hickey says that company is more attractive than the overpriced stock.
Throughout most of the market boom, from 1988 through 1996, Intel's stock was never priced more than 15 times its earnings. During the same period, its price-to-sales ratio was 2 or less.
Even with its most recent slide, Intel now trades at nearly 5 times sales, and 33 times 2002 earnings. If you were to take the run rate of its March quarter earnings, the PE would be even higher.
IBM, Applied Materials (AMAT: news, chart) , Micron Technology (MU: news, chart) -- each stock carries a consensus analyst rating of "buy." Each has more "strong buy" and "buy recommendations than they did a year ago. Each of the companies represented by the stocks is gaining market share vs. competitors.
And each stock is headed lower, Hickey says.
Of the three, IBM (IBM: news, chart) looks particularly weak, according to Hickey. He says that of all big-name tech stocks, IBM has the least chance of making its 2002 earnings estimates, even though the company will artificially improve earnings with a planned restructuring charge of $2 billion to $2.5 billion.
"But I can't make a case for buying any of them," he said.
Hickey's comments may appear rash. He's far more pessimistic than many of the market's leading commentators, who see market improvement around every corner.
The difference between Hickey and the rest of the crowd is, whether you like what he says or not, he's hard to ignore, since he's been spot-on about the extent of the market's dismal state time after time.
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Mike Tarsala is a San Francisco-based reporter for CBS.MarketWatch.com.
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