Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Creative Labs (CREAF) -- Ignore unavailable to you. Want to Upgrade?

To: Curbstone who wrote (7835)	1/7/1998 11:31:00 PM
From: Douglas V. Fant	Read Replies (1) \| Respond to of 13925

Mike, Yes, foreign stocks that only trade as ADR's on the US exchanges are subject to manipulation since they are not subject to US stock exchange ttrading and disclosure rules. Now that said, the float of CREAF is so big in millions of shares that I do not believe that this stock could be manipulated. On any ADR stock you need to study the earnings reports and annual reports carefully for data relevant to the stock's/company's well-being. CREAF IMO did an excellent job in disclosing relevant financial and performance data on the company in its annual report. What drives CREAF IMO? A number of internal and external factors currently. First guilt by association- CREAF is Asian-based. Currently there are financial problems in Asia since a number of countries managed their economies by overinvesting in capital projects and underinvesting in consumer issues and focused primarily on gaining market share - when the price of the goods produced by the capital investments fell, e.g., DRAM chips by Korea, you essentially had a larger market share-of a loss. Then if you borrowed money to build the plant you also have a hard time paying back the banks. It is identical to the real estate "bust" in the US in the late 1980's in impact upon the financial system. It will take a while to sort out the bad banks, package them and sell them to the good banks, but it will be done. Thereafter watch the financial institutions in Asia generally be much stronger. So many Asian economies (not all!) will need to contract a bit before beginning to expand once more. This contraction will slow the tempo of business all over Asia for a while. But recovery will occur- strong SE Asian economies are an absolute cornerstone in US/western foreign policies as the US sees a strong Japan, Korea, Indonesia, Malaysia/Singapore, Taiwan, Philippines, and Thailand acting as "containment" of a potentially aggressive expansionistic People's Republic of China. Second the tremendous success of the SE Asian Tigers and their eventual fully developed country status hopefully will then encourage Burma, India, and finally China to take the free market path- that's 1/3 of the Earth's population. But it may take a while to shake out the excesses of overinvestment in the capital sector. Second Japan Financial policies will hold down Asian stocks probably including CREAF through the end of March. Why? March 31st is the end of the fiscal year for most Japanese Companies. Many Japanese Companies hold stocks of other Japanse Companies. Just like US Mutual Funds at the end of each quarter the corporations who want to show a little bit more free cash on their books will sell some of that stock during this period-i.e. convert stock to cash. These corporate stock sales often hold down the Japanese markets in this time period and wil likely put downward pressure on other Asian markets.. But after April 1st the selling pressure (related to fiscal year end) should subside- perhaps a good time to commit funds to Asian stock mutual funds??? Next CREAF lives under the perpetual threat of having sound and video drivers moved to the motherboard, thus eliminating the need for CREAF peripherals. Well yes you can program all sorts of functions onto the motherboard- but it slows down the processing function of the processing chip. So with curent technology why do it? It's like the Panama Canal. Mexico and Nicaragua for years have both planned to build a new canal which would be closer to ther US than the Panama Canal, and thus capture US-related coastal traffic. But it has never happened- not enough money in it. I think that the same theory will hold down Intel, and I think that the Justice department probe of MSFT will make them walk softly moving forward in terms of threatening CREAF's niche. Finally right now it is definitely "uncool" to own tech stocks- they are once again the "dogs of the market". If you ever turn on CNN Financial Network news, have you noticed over the last three months that every analyst interviewed "disses" tech stocks? Like someone chanting a mantra they say "Tech stocks are not the place to be; tech stocks are not the place to be". Well remember an old Country and Western Song by Kenny Rogers called "The Gambler". In the song Kenny R sings about card playing saying "That every hand's a winner and every hand's a loser". Well yes! That's true of tech stocks too! Will annual revenue growth rates of tech stocks drop because of the Asian crisis and world economic slowdown-yes! But will tech stocks generally still have the highest annual growth rates of any group of stocks-yes! Will the tech revoution stop- of course not. Indeed although it will not be a perfect corollation, for every stumble say in Korea on DRAM manuafacturing, look for someone to pick up Korea's slack such as Taiwan. So with the slowdown e.g. KLIC was overpriced last summer at $55/share. But did you know that KLIC closed @ $18 5/8ths/share today a 66% drop in price in six months? It's a premier bonding machine company. Yes it will lose orders due to the crisis in Asia. But is the premier chip bonding machine company with a book value of $12.23/share worth 1.3 times book value? And look at CREAF the premier multimedia company- projected 1998 earnings of $2.30/share more or less- if you slashed that estimate today 40%, then CREAF would still earn about $1.40/share in 1998 and sell at a p/e of about 11.5- and also have a cool $330mm in the bank to boot to reinvent itself like a Rockwell or a Philip Morris if their flagship line products falter in demand..... Finally check out option premiums- they are incredibly huge right now, both puts and calls. A cautious way to play this market is to buy a stock and then sell this month's nearest to the money call, and then just lay low. Look at CREAF. It closed @ $17 5/8ths/share. A Jaunary 17.5 call option sells for $1 1/16th share and expires eight days from now. That's 3.93% on your money for a week's work. And if CREAF falls in price then just pocket the money from this month's call and sell next month's call which is now nearest the stock's price. Look also e.g., at ASND Jan 99 call options. Now the price of ASND jumped today (networkers like Internet stocks will generally not be impacted significantly by Asian events). The options pre price jump were last trading around 6 7/8ths. The stock is at $27 1/2 share. Want to start 1998 with a 25% rebate on the price of ASND? CREAF will with other tech stocks "wander in the wilderness" for a couple of months- but I bet by December 1998 that we will reach the "promised land"..... Sincerely, Doug F.