Gang,
For what it is worth these are consistent with my sentiments:
While many of its rivals will rebound, for the time being Cisco looks like a safer competitive wager as money managers peruse their Christmas shopping lists.
Top Stories: Networkers: Trusting in Cisco, Dabbling in the Rest
By Kevin Petrie
Staff Reporter
11/17/97 4:31 PM ET
Against a backdrop of Asian jitters, the networkers have realigned themselves.
The winner in the new arrangement is Cisco (CSCO:Nasdaq). While plenty of analysts say they knew it all along, few had predicted the recent -- albeit probably temporary -- retreat of rivals such as Newbridge (NN:NYSE) and 3Com (COMS:Nasdaq). Professional investors, eager to protect the year's gains, are pledging dollars to Cisco while searching for the trough in former favorites such as Bay Networks (BAY:NYSE).
The networking sector jumped on Monday, exuding more spirit than it had in Friday's session. Late in the session Cisco had climbed 1 11/16, or 2.1%, to 83 1/16, within spitting distance of its record Nov. 5 high of 85 7/16. Ascend (ASND:Nasdaq) lifted 1, or 4.1%, to 25 7/16. On heavy volume of 15.9 million shares 3Com was up 3 13/16, or 12.6%, to 34 1/8, after pushing a high-end product announcement. Shares of Bay Networks rose 3/16, or 0.7%, to 28 3/4, to mark a second day of healthy gains. Newbridge's rather rickety stock also continued a recovery started Friday, adding 1 1/16, or 2.3%, to 47 1/2.
But Monday's bounce might say more about technology sentiment than it does about the medium-term prospects for networkers.
"There's so much fast money around," says one trader. He says Bay surged Monday for two reasons: Short-sellers are scrambling to cover their positions, and institutional investors continue to buy into the trough they think they spotted late last week. Zealous buyers prompted a trade imbalance early Monday.
Indeed, after slipping 30% from an Oct. 9 highwater mark, and cutting below its 10-day and 50-day moving averages, Bay's stock has found support near its 200-day trailing average. Bay's stock trades at 50 times trailing earnings, excluding big charges.
Meanwhile, Cisco's performance in recent weeks illustrates its dominance. From Oct. 9 to Friday's close, the stock lost less than 1%, while its brethren skidded 17% to 45%. Cisco is trading near its 50-day moving average and well above its 200-day average, while many others have fallen through those trend lines.
While many of its rivals will rebound, for the time being Cisco looks like a safer competitive wager as money managers peruse their Christmas shopping lists. Cisco's stock reflects the trust of investors -- it trades at 48 times trailing earnings, compared with 29.7 for 3Com.
"They're the obvious gorilla, and they're also the least likely to be in someone else's sights," says analyst Brandy Brandon at Eaton Vance, a Boston investment shop. Others aren't so lucky -- for example, microprocessor giant Intel (INTC:Nasdaq) has targeted 3Com's low-end PC connection products, rolling out their own products to compete in this market. Brandon declined to state his firm's position in these stocks.
The Nasdaq has tumbled 9.3% from Oct. 9 to Nov. 14, prompted largely by equity erosion in Asian markets. During this period, the networkers confessed some ugly news.
A sampling: Ascend's stock descended 26.4% from Oct. 9 to Friday's close. What lubricated the slide was a warning from executives on Nov. 3 that price cuts and diminished product demand will dim visibility for a few quarters.
Newbridge and Bay Networks, which for several months posted remarkable stock growth, have gotten lost. Shares of Newbridge are off 29% since Oct. 9, again measuring by Friday's close. On Nov. 4 Newbridge admitted that an acquisition is dragging profits below the expected level (one day after an ill-timed upgrade from JP Morgan).
Shares of Bay have ebbed 30.3%. On Nov. 11 chip-maker Rockwell (ROK:NSYE) filed a lawsuit against Bay Networks for abusing its 56k modem technology, which snarled Bay's highly regarded plans to accommodate two competing 56k standards with its remote-access products.
3Com's market cap has leaked slowly, losing 45.2% in the same period. At conferences in California early this month, 3Com chief executive Eric Benhamou told TheStreet.com and the wire services that bloated inventories still pose a headache for its acquired U. S. Robotics unit. For 3Com right now, only the hot-selling PalmPilot seems to shine.
So it ain't pretty out there. 3Com, Bay and Newbridge are likely to regain stride in the medium to long term. Until then investors trust Cisco.
DrRisk lying in wait |
