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Technology Stocks : Ascend Communications (ASND) -- Ignore unavailable to you. Want to Upgrade?

To: Gary Korn who wrote (38747)	3/11/1998 1:22:00 AM
From: djane	Read Replies (1) \| Respond to of 61433

[3/10/98 SmartMoney article on the usual tech stocks swoon in March every year. ASND mentioned tangentially] smartmoney.com March 10, 1998, 12:15 P.M. EST MARKET INSIDER Et Tu Cisco? Tomorrow's Market Tonight COME THE END OF MAY, it's about as predictable as lilac buds: Headlines start blooming in the financial press warning of the Summer Tech Swoon. Any dip in the Nasdaq is matched by a corresponding blip in the general Wall Street panic index. But what about March? A close look at the performance of the biggest tech indexes over the past five years suggests that the third month is the one to worry about. Take a look at the applet above. When you measure average monthly performance since 1992, index after index shows that early spring is the cruelest period for investors in technology stocks. Summer isn't great, but beware the Ides of March. What gives? First off, consumer spending is at a seasonal low following the holidays. But more important is the consistency with which tech companies dash expectations as the first quarter moves along. Having made a big push to satisfy Wall Street's hopes for fourth-quarter and annual earnings, the next period is always difficult -- often because product has been foisted on distributors to pump up results. After the end-of-year hustle, tech companies also delay new-product launches, which in turn stymies purchasing decisions, which inevitably leads companies to preannounce that they will miss earnings estimates. "The year always starts off with lofty expectations, then the reality sets in and estimates for the year go down," notes Robinson-Humphrey's Robert Anastasi, a Wall Street Journal All-Star analyst covering computer hardware. Compaq Computer's (CPQ) troubles this year are a good example. Having stuffed the distribution channel to enhance fourth-quarter results, the world's largest PC maker warned last week that bloated inventories would crush first-quarter sales and earnings. Last year it was Cisco Systems (CSCO) that got hammered due to worries about product transition problems and sagging European economies. Part of the problem is that fast growing tech companies are often evaluated based on their sequential -- not year-over-year -- growth. While Gillette (G) investors compare this quarter to the same one last year, Ascend (ASND) investors are more likely to compare the first quarter to last year's fourth. Any quarter-to-quarter slowdown raises eyebrows and uncertainty, leading investors to dump shares. "The first quarter tends to be somewhat weaker than the fourth, and less likely to surpass estimates," says Bruce Lupatkin, director of research at Hambrecht & Quist. While the indexes in our applet cover a whole swath of tech industries, Melissa Cook, director of quantitative analysis for Prudential Securities, found that since 1962, there is a tendency for hardware (PCs, servers, disk drives, etc.) and communication equipment companies to underperform the market in March. Witness Intel (INTC), Motorola (MOT) and Compaq this year. Indeed, if it weren't for the red-hot Internet stocks, there's no telling where the Nasdaq would be this month. Our advice? Don't quit your day job and try to become a market timer. The past is not necessarily prologue in the stock market. Besides, another look at the data demonstrates that May competes with January as the strongest month for tech stocks. Remember Cisco? On a split-adjusted basis, the giant networker's shares tumbled to their 52-week low of 30 1/16 last March, only to double over the next 12 months. The message is this: If you pick decent companies and can stomach the inevitable volatility, tech stocks can earn you a lot of money over the long haul. And when the Spring Swoon gets you down, remember -- you're in good company. -- By Pablo Galarza << SMI MARKET NEWS ARCHIVE