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Technology Stocks : FSII - The Worst is Over? -- Ignore unavailable to you. Want to Upgrade?

To: Joe Dancy who wrote (1622)	12/2/1997 6:32:00 PM
From: Kent Sarikaya	Read Replies (2) \| Respond to of 2754

Do you believe this? I bet by January this sort of stuff will disappear and we will be told to buy technology and they will be upgraded... I know I have become very cynical lately.<g> 12:51 PM ET 12/02/97 RESEARCH ALERT - Merrill cuts chip makers' EPS NEW YORK, Dec 2 (Reuters) - Merrill Lynch analyst Tom Kurlak said on Tuesday he reduced his earnings estimates on shares of various semiconductor companies including LSI Logic Corp and Texas Instruments Inc . -- Kurlak said companies are experiencing slower order rates for a variety of reasons, which, combined with excess industry capacity, has caused weaker prices. -- The weaker pricing is offsetting unit growth, he said. -- Kurlak cut 1998 estimate on Texas Instruments to a range of $2.00 to $2.50 per share from $3.00 per share, but left his 1997 estimate unchanged at $2.04 per share. -- Cuts 1998 estimate on LSI Logic to range of $1.10 to $1.20 per share from range of $1.20 to $1.30 per share but keeps 1997 estimate at $1.12 per share. -- Lowers 1998 earnings estimate on shares of VLSI Technology Inc to a range of $1.40 to $1.50 per share frmo a range of $1.55 to $1.70 per share. Leaves 1997 estimate on VLSI unchanged at $1.29 per share. -- Reduces 1997 estimate on shares of Altera Corp to $1.51 per share from $1.57 per share and 1998 estimate to range of $1.60 to $1.75 per share from $2.00 per share. -- Altera said on Tuesday it expects fourth-quarter revenue and earnings per share to be about as much as it reported in the third quarter on weaker-than-expected sales of its computer chips. -- Kurlak said semiconductor industry faced overcapacity which 1996 correction did not eliminate. -- Lead times were also very short and customers were not stocking much inventory, he said. "You have an inventory reduction going on," he said. -- Also, growth in the semiconductor industry's end markets, such as workstations, personal computers, wireless and telecom switching, was decelerating slightly, he said. -- "Generally they are ordering less," Kurlak said. "The companies that sell to those companies are telling us this." -- Altera shed 11 to 40-11/16, VLSI lost 2-5/16 to 20-5/8, LSI fell 1-13/16 to 23-5/16 and Texas Instruments lost 3-12/16 to 48-1/16.

To: Joe Dancy who wrote (1622)	12/4/1997 11:40:00 PM
From: Donald Wennerstrom	Read Replies (1) \| Respond to of 2754

Joe, I like your analysis and thoughts you put forth. I agree with your approach, and as you say, there are 100 valid strategies to make a lot of money. While I agree in general with the long term holding strategy, I still question if that is the best or only approach when dealing with technology stocks. They are so volatile! In both 1995 and 1997, many semi-equip stocks doubled or better in the matter of a few months. Then within a fairly short period, a few weeks to a couple of months, they went down faster than they went up. (That is always the way of course). Then from 95 you had to wait a year or two until the next big runup - and as the data shows - some of them didn't make their old highs. FSII being a good example. Let's first look at a technology stock - pick FSII since we are on the thread. Let me make some summary observations (don't hold me to precise numbers and dates). The stock was at $6 per share in June 94. It went to $38 by September 95 - a period of 15 months. By buying and selling at those points, the annual compound growth rate was 340 percent. On the other hand, if you bought at $6 in June 94 and held until now, December 97, a period of 3.5 years, and sold at $15 per share - this is an annual compound growth rate of 30 percent. Not bad, but not good either, considering the opportunity to do better by doing some selling and buying during the interim. As you know, it went down to $10 per share in the middle of 96 and went back to $23 in October of this year - now we are down to $15 and probably lower before it turns around. Now let's contrast FSII with a real growth stock that I believe is "essentially perfect" for a buy and hold strategy. I could have picked several, but I will choose Coca Cola. It's a nice stock to use because there is a long term history easily available. Picking some points on the curve, first start in July 86 at $5 per share. It stayed there until Jan 89, a period of 3 years before it started to move up. It moved up in a straight line until Jan 92, a period of three years when it hit $20 per share. Then it stayed at $20 until July 94 when it started to move up (in a straight line). It kept going until July 97 when it hit $70 per share (since then its turned a little volatile). This entire period spans 11 years. The compound annual growth rate over that period is 27 percent - very similar to FSII when it was bought and held. My point is, the stock action of KO was so smooth that very little, if any, extra gain could have been obtained by trading KO over any of that 11 year period. Not so, however, for FSII. Here a lot of money was left on the table with a buy and hold strategy. I am not trying to be a day trader or even a "week" trader, but I am interested in finding techniques that would let me identify periods of high gains and swift losses in order to take advantage of the volatile swings in stock prices in the technology sector. Having some of those techniques that would have allowed effective participation in the 95 and 97 runups and rundowns should have netted a 200 percent annual compound growth rate in FSII over the 3.5 year period instead of 30 percent without buying or selling. Regards, Don W.