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Analyst Bullpen Analysis Archive
TAUB TALK: Where is the Internet Wave Headed Now? TODAY
I. I. A N A L Y S I S
Fore Systems: A Tempting Telecom Takeover Target
UPDATE: Eureka! A Profitable Biotech!
GM: In the Driver's Seat and Ahead of the Curve
UPDATE: NeoMagic's Magical Reverse Bungee-Jump
Wedding Bells: The GTE/Bell Atlantic Marriage is Worth the Wait
UPDATE: Procom's Second Quarter Falls Short
C O M M E N T A R Y
TAUB TALK: Where is the Internet Wave Headed Now?
Take the Off-Ramp at exit23b.com
JONO'S BULL'S-EYE: Selling Off Lycos is Nuts
JONO's BULL's-EYE: Xylan Looks Ripe for the Picking
DID YOU MISS A DAY?
Last 7 Days Archived
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So, is this another one of those buying opportunities for internet stocks?
Will investors being kicking themselves in a few months for not buying on the current dip?
These are the questions that day-traders, money managers and, heck, most investors are mulling. And their indecisiveness is evident by the way the internet stocks traded on Wednesday, when most of the high profile ones either finished up or down a point or two.
That's very un-internet stock behavior, don't you think? These things are supposed to move up or down by double-digit points. Shame on them.
The reason, though, is that the people who recommend them and buy them haven't a clue about what's next for this group.
In fact, they never had a clue. They pretended they did. Sure, sell-side analysts would yack about the internet revolution. On this one, we certainly agree since this is what we do for a living.
But, then they'd pretend they were doing securities analysis, drawing up revenue and non-earnings models, pricing projections, market penetration projections.
This was all a charade to leave the impression that they are applying the principles they learned at business school. Let alone justify the huge sums they shelled out and the number of hours they spent doing case studies.
The reality is that investors-both professional and novice-were never and are still not engaging in securities analysis. They are practicing market psychology. Wave analysis. Trying to judge which way the internet stock winds are blowing.
How do I know this? For one thing, I've seen this movie before. It's called Emerging Markets stocks.
For several years, emerging markets analysts pretended they were doing real securities analysis and poring over spread sheets to come up with the stocks they recommended or bought.
The reality is they were all buying the same handful of stocks that accounted for the bulk of the puny emerging market's capitalization. Then-CRASH!!!-when every stock collapsed for some macro reason, this securities analysis charade was exposed. And in the past year, a number of 20-somethings have come home from Jakarta and Istanbul and Seoul, looking for a real job.
In the case of the internet, at least a few Wall Streeters are starting to admit that they have no clue. Take Bruce Smith, who follows these stocks for Jefferies.
On Jan. 13 he put a 'hold' on Yahoo (NASDAQ: YHOO) near its all-time high, before the stock collapsed by about 50%. Smart right? In his report he said 'We are reducing our rating to Hold based on valuation.'
Nonsense. He felt the wave. He was right that time. In mid-December, however, he laments that he downgraded a larger group of stocks prematurely. They doubled afterward.
Isn't it better to be early rather than a day late with such volatile stocks? 'In this case, it is better to be a day late,' he insists.
Does he think now's one of those huge buying opportunities? Smith throws up his hands and says: 'I don't know, ask the day traders.'
A similar response comes from David Alger, president of Fred Alger & Co., which has made some good money trading these stocks. David is quick to point out that he and his cohorts 'are fundamentalists. We look at companies and make some determination.' But then he concedes 'These (stocks) are hard to value.'
Is he confident in his criteria for valuing these stocks? 'I have no idea,' he says. But to determine when to get back in he concedes: 'It must be seat of the pants.'
So much for fundamental analysis.
So, is now another one of those buying opportunities that have come along in the past year? Should investors play the dip?
I don't know either. But keep this in mind. A few of the major companies, including Yahoo, Amazon.com (NASDAQ: AMZN), America Online (NYSE: AOL) and eBay (NASDAQ; EBAY) are just a few points away from where they traded at when the year began. That's just five weeks ago.
This could be signaling a buying opportunity. However, if the stocks crash through this level, the next shelf where these stocks hung out for awhile was established back in early December. If these four stocks drop to just their early December lows-that's not a long time ago folks-we're looking at huge collapses.
For example, Yahoo, which closed Wednesday at $142.38, up $1.68, would fall about 35% to about $92. Ebay, now $212, would drop 18% to $174. Amazon would plunge 36% to around $62 while AOL would sink 45% to around $83.
Now, look how much these stocks would sink if they crashed through the December shelf and fell all the way to their early October lows, a big four months ago. Suddenly Yahoo shareholders would be yelling 'Uh oh,' as the stock would plunge 63% to around $52. EBay would fare much worse. Its stock would collapse by 86% to $29. Amazon would fall 72% to around $29 and AOL would drop 72% to $43 or so.
Sounds implausible?
This may well be another one of those buying opportunities to make a fortune from. But, keep in mind that there are a number of hedge fund managers out there itching to ride the next wave…all the way down to the October lows.
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