Consumers keep schizophrenia alive
Net stocks seen facing high consumer exposure
By Bambi Francisco, CBS.MarketWatch.com
Last Update: 12:14 PM ET March 7, 2003
SAN FRANCISCO (CBS.MW) -- With the approach of the third anniversary of Internet stocks' zenith-turned-meltdown, we're reminded of fleeting realities, dreams and wealth. But one thing lives on: schizophrenia.
That distinct pattern of trading that's become commonplace in the market, was again apparent Friday as many stocks mounted gains even in the face of fresh news of job losses, sinking revenue, and war tensions.
Internet shares, however, could be in for more than their fair share of volatility in the days and months ahead as the strength of the consumer remains increasingly vulnerable.
Merrill Lynch has just downgraded the consumer discretionary sector, citing the impact of rising energy prices and the depressing job market. "We find that energy prices usually adversely affect consumer spending on tech products," wrote Steven Milunovich, tech strategist at Merrill Lynch.
Milunovich highlighted five companies with 90 percent of their revenue exposed to the consumer market.
Among them are AOL Time Warner (AOL: news, chart, profile), Amazon.com (AMZN: news, chart, profile), EBay (EBAY: news, chart, profile), Electronic Arts (ERTS: news, chart, profile) and Yahoo (YHOO: news, chart, profile). Those stocks weaved in and out of the plus column in midday trading Friday, but EBay managed to hit a new 52-week high, at $79.41.
Sony (SNE: news, chart, profile) is also at risk for having more than 60 percent of its operating profits generated from its gaming business, according to Milunovich.
Handset makers such as Nokia (NOK: news, chart, profile) and Motorola (MOT: news, chart, profile), have high exposure to the consumer as well, the analyst wrote. Nokia has 77 percent exposure to consumers while 75 percent of Motorola's business is exposed to the consumer. Apple Computer (AAPL: news, chart, profile) has 50 percent exposure to the consumer.
Companies with less than 50 percent but higher than 35 percent exposure include Microsoft (MSFT: news, chart, profile), Symantec (SYMC: news, chart, profile), Nvidia (NVDA: news, chart, profile), Intel (INTC: news, chart, profile) and Intuit (INTU: news, chart, profile).
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