From Briefing.com: Updated: 15-Nov-02
General Commentary
If you believe that price movement anticipates fundamental change, then you must be getting excited about what's taking place in the tech sector. As you can see from the table below, gains off the October lows have been staggering (percentages calculated off midday prices on 11/14).
Industry Index Percentage Gain off Oct lows Current Price 200-day Moving Average
Wireless Telecom Index (YLS) 66.2% 52.34 51.90
Networking Index (NWX) 64.4% 131.54 171.48
Philadelphia Semiconductor Index (SOXX) 48.6% 319.17 417.88
Amex Telecom Index (XTC) 41.2% 432.20 476.03
Gsti Software Index (GSO) 37.4% 107.16 119.48
Hardware Index (HWI) 32.4% 109.81 119.61
Anybody following the recent earnings trends knows that while we've seen some modest improvement - due principally to streamlined operations and not increased demand - there's been nothing in the sales/earnings numbers to warrant such impressive price gains. This means one of two things.
One, smart money knows that the sector fundamentals are on the mend. Given the improved operating efficiencies, the upcoming earnings recovery will be quite strong. If true, then buying any prices weakness - as we've seen unfold over the past month - is a good strategy.
Two, rebound was inspired by deeply oversold technicals, short-covering, relief that Q3 earnings weren't any worse and some year-end portfolio maneuvering. Unfortunately, there's been little in the earnings themselves, company guidance or economic data to suggest a big pick-up in business investment in the quarters to come. Demand just remains too soft. With little change in end-user demand and sluggish corporate IT spending, earnings growth will remain anemic thereby putting into question sustainability of advance. Valuations simply becoming too rich once again given underlying fundamentals.
If you favor option two, and Briefing.com finds itself leaning in that direction, then now - as the industry indices approach their long-term moving averages - is a good time to reduce exposure to the sector. Too cautious? Maybe. But if the sector indices blow through their respective 200-day moving averages, then there will be time to get back in and squeeze out more gains. However, when you consider how often the sector has disappointed investors over the past few years and how hard the stocks have fallen - Briefing.com contends that it's better to err on the side of caution.
See Industry Briefs section below and/or In Play page for info on Dell's earnings report.
Robert Walberg, Briefing.com
4:39PM Dell Computer: "certain factors" could make Q4 EPS $0.24; Multex consensus $0.23 -- Dow Jones (DELL) 30.94 +0.89:
4:34PM Dell Computer CEO says overall computer demand more or less stabilized -- Dow Jones (DELL) 30.94 +0.89:
4:05PM Dell Computer expects Q4 to be in-line with consensus (DELL) 30.94 +0.89: -- Update -- Co expects Q4 EPS of $0.23 and expects revs to rise 20% YoY to nearly $9.7 bln (in-line with consensus).
4:03PM Dell Computer matches estimates (DELL) 30.94 +0.89: Reports Q3 (Oct) earnings of $0.21 per share, in line with the Multex consensus of $0.21; revenues rose 8.1% year/year to $9.14 bln vs the $9.10 bln consensus.
2:48PM Applied Materials (AMAT) 14.98 +0.28: Although company beat Multex consensus estimate of $0.08 by $0.01 in last night's Q402 earnings report, upside resulted primarily from favorable tax adjustment, without which EPS would have been $0.07. Despite less than stellar results, shares are trading up 1.9% on cautiously optimistic analyst calls. While AMAT's weak outlook is company-specific, Thomas Weisel believes extent of downturn will have greater effect on other competitors lacking strong balance sheet, free cash flow, and dominant technology position; therefore, although remaining cautious toward sector, believes AMAT offers attractive investment opportunity for patient investors; reiterates Attractive rating. Merrill Lynch thinks orders are approaching bottom over next 2 quarters providing support for stock around current levels. Banc of America suggests investors be disciplined about entry points and accumulate stock in $10-12 range.
1:55PM Retek (RETK) 3.49 +0.11: While acknowledging stock's nice recovery off post-Q302 pummeling, Soundview Technology remains cautious on shares when taking into account challenging close rates and uncertainties around structuring of very large potential transactions; although bookings target has been markedly reduced and Q4 appears achievable, weak spending dynamics in retail applications show no signs of alleviating. Firm views RETK as potentially having most leverage in resumption of retail growth scenario, but does not suggest to aggressively pursue Neutral-rated stock absent better visibility into sales execution.
2:38PM Micron: positive comments by Lehman (MU) 13.92 +0.85: -- Update -- Dan Niles at Lehman says that although most people assume that by mid-Dec DDR DRAM prices will collapse to the same low level as SDRAM, he believes that in fact SDRAM prices are more likely to increase over time with some modest fallback in DDR prices to narrow the price gap; with a book value of $10.44, firm believes MU should be bought.
2:01PM Chart Watch -- INTC : The semiconductor sector has provided leadership again today with Intel (INTC +5.9%) outperforming. Contributing to the outperformance today is the announcement that the company has authorized the purchase of an additional 480 mln shares as part of their existing stock repurchase program.
The issue is currently vacillating near resistance at its early month highs (19.23) after a minor penetration. A continued short term posture above supports at 18.80 and more importantly 18.30 leaves the issue in position for a run at a strong resistance barrier near 20. As we can see in the chart below, this level proved an important floor for a 15% bounce in June and a key ceiling during subsequent rally attempts in July and August after the downside extension (also marks the 38% retracement of the May/Oct slump).
The action this month has been constructive as the issue held above both initial retracement targets and its 20 day ema (blue line). However, given the importance of the resistance barrier at 20 and the fact that such a move would bring the rebound off the Oct low to 54%, INTC may have some difficulty sustaining a push through this area on initial attempts.
If a pullback scenario does develop, would once again look to retracements and the moving averages to hold as an indication that the intermediate term bias remains bullish. Subsequent resistances are at 21.25 and the 22/23 area (bottom of June gap, 50% retrace, 200 day sma-black line). -- Jim Schroeder, Briefing.com
12:49PM Qualcomm (QCOM) 36.98 +1.85: While nothing really new came out of yesterday's analyst day in London, management provided thorough description of strategy and products; reiterated confidence in ability to exceed Y03 EPS guidance of $1.15-1.20 (vs. Multex consensus of $1.18). Despite upbeat presentations, with shares trading at 30X Y03 estimates, analysts are concerned with company's valuation. Deutsche Bank thinks all good news are factored into stock and company must deliver or exceed promises for upside to be achieved. Soundview Technology remains cautious on name at current levels given lumpy earnings and sales projections over next several quarters. Although admitting stock is not inexpensive, Goldman Sachs thinks company should maintain premium to growth and outperform peers; to the extent Q402 handset sell-through comes in at or better than expected, believes stock could break out of recent low-high $30 trading range. Shares up 5.3% in today's session.
11:03AM Qualcomm just shy of Nov high (QCOM) 36.48 +1.35: -- Technical -- Issue pushes to a new session high with the November high just above at 36.65. The top of the three week trading range provides resistance thereafter (closing 36.96, intraday 37.10). If a sustained break is seen over the near term, the initial levels of interest are at 37.26 (top of Apr gap) and 38.10 (38% retrace). Intraday support is in the 36.10/36 area.
10:02AM Technical Levels : So when we reviewed the Nasdaq yesterday, we were favoring a near-term higher bias, with our first level of resistance at Nasdaq 1,360. The 1,360 level isn't a major technical level by any means, yet it has drawn our attention as it represents the bottom of a former gap created on November 4th. As it turns out, the Nasdaq did indeed head modestly higher yesterday, closing out the session at 1,361 -- not a bad match with our 1,360.
So we've been pointing to the fact that the indices are beginning to take shape again so that the near-term technical assessment may be more productive going forward. Yet while we have properly directed a fair amount of attention at the very near-term technical levels, there is some merit to widening the time frame for those traders that favor a longer-term orientation.
Now this second chart is simply a broader view of the previous one. It takes the 'daily' time frame and changes it to a 'weekly' time frame for the purpose of getting a better look at the longer-term technical outlook. Without making things complicated, you can see the importance of that resistance we've been watching in the range of 1,419 to 1,423. Now a second obvious take away is that over the past 20 months, that range between 1,423 and 1,613 is reasonably vacant -- arguably the fundamental difference between the market's perception of 'ongoing recession' and 'potential recovery'. One final interesting point is that the near-term chart pattern is taking on the shape of an inverse head-and-shoulders pattern -- a decidedly bullish formation, and something worth watching as the index works towards a break of 1,423.
8:48AM Intel adds 480 mln shares to buyback program (INTC) 18.12: Co's board has authorized the purchase of an additional 480 mln shares as part of the co's existing stock repurchase program. From the beginning of the program in 1990 through Q3 of 2002, Intel has repurchased approx 1.7 billion shares at a cost of about $29 bln. During Q3, Intel repurchased approx 57 mln shares at a cost of roughly $1 bln.
8:34AM Micron downgraded at Prudential; target $11 (MU) 13.07: Prudential downgrades to Hold from Buy based on the belief that DRAM prices will come under pressure at a faster pace than the mkt anticipates, and that the opportunity to buy Hynix's DRAM assets has been missed; cuts price target to $11 from $21.
9:47AM The Big Picture - Today's Economic Data: The dogs still aren't barking. Today's economic data provides no evidence whatsoever of a double-dip recession.
The Big Picture has been harping for weeks that the New Claims data shows no signs of a worsening in labor market conditions. This morning, New Claims for the week ended November 9 dropped to 388,000 from 396,000 in the prior week. The 4-week moving average fell to 397K from 403K. There is a well known problem that the seasonal factors may be warping the data. High claims last year after September 11 affect the seasonal factors by creating expectations in the formula of high levels again this year. The seasonals thus get too strong, and reduce the raw data lower than the formula should. Nevertheless, a back-of-the-envelope calculation suggests that correcting for this would push the current seasonally adjusted claims a bit above 400,000. That's not reflective of a booming economy, just modest growth. But it also in no way suggests a double-dip recession.
The Retail Sales data this morning was also encouraging. Excluding auto sales, retail sales jumped 0.7% in October from September. That is the best gain in many months. It shows that baseline consumer spending remains strong. Fears of declining consumer spending based on declines in the Consumer Confidence Index are overblown. A Briefing.com Story Stock on October 29 examined this in detail. Simply put, the consumer keeps spending at a solid clip.
Briefing.com is not oblivious to the problems in the economy. Business investment in technology and in infrastructure (such as buildings) remains extremely weak. Many banks and companies are still working through credit problems caused by the excesses of the recent boom. Businesses are struggling to create any profit growth. Pricing pressures remain severe. Yet, the simple fact is that Gross Domestic Product (GDP) grew at a 3% annual rate in the third quarter, and should grow at a 1% to 2% rate in the fourth quarter, with growth accelerating a bit in 2003.
The underlying resilience of the U.S. economy and low interest rates are reasons why Briefing.com is modestly bullish towards the stock market for the next several months, as discussed in a Stock Brief this morning. Valuations on many stocks remain high, and profit growth is weak. But, it should also be reassuring to investors to see the economic data continue to show no indication of a double-dip recession. -- Dick Green, Briefing.com
In technology, the news continues to be mixed. Yesterday after the close, Applied Materials (AMAT 14.70) reported fiscal fourth quarter earnings a bit ahead of expectations. But they warned next quarter doesn't look good, and basically said they don't know when demand will pick up. Briefing.com lowered its rating on the semiconductor sector November 5. The sector had a run on the idea that it would get a traditional early boost on any pickup in the economy. This cycle, however, technology is not likely to benefit from increased demand due to the excess of business investment the past few years. Unless, of course, a company has adopted a new business model.
8:29AM RF Micro Device CEO to resign (RFMD) 7.88: Co announces that Bob Bruggeworth will succeed David Norbury as CEO in January. Mr. Norbury, who is retiring, plans to continue as a member of co's board of directors.
8:07AM Cisco Systems cut to Buy at Needham on valuation; target $16 (CSCO) 13.42:
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