 |
 | |
 |  |
| 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. |
To get The Internet Financial Connection newsletter emailed to you for FREE, send an e mail to <mailto:ifc-request@mLists.net> and write "subscribe" in the body of the letter. The original version can be found at http://www.techstocks.com/~wsapi/investor/newsletter-69 Michael Murphy, Editor of the California Technology Stock Letter ctsl.com and mutual fund manager, provides the following interview. An annual subscription is $295 for 24 issues and can be contacted by phone at (650)-726-8495. Below is the write up. Q: During the last week we have seen a rally in technology stocks, is this a blip or will we see new highs in the technology indexes? A: Yes, I think we will see new highs and have seen the bottom here. There is usually a summer slump in technology stocks. The old saying is, "to sell them at the Hambrect & Quist Conference," which is in the first weekend in May and we had a good size sell off. The sell off was based on fears of the June quarter earnings and we obviously had many companies pre announcing poor results. There may be a few more pre announcements but, we are coming to an end of that period. We then go into actual earnings reports, which will not be that bad. More importantly, the forward looking statements that the companies make about what September and December look like are shaping out to look good. Normally there will be another sell off around August or right after Labor Day. The strongest part of the cycle for Tech Stocks is the Fourth Quarter Rally and we are basically setting ourselves up for that. Q: Some Wall Street analysts were predicting poor earnings estimates such as with Western Digital's earnings shortfall announcement. Will there be a downside pressure for certain sectors? A: There are some sectors where there is significant price pressure. They are SRAM, DRAM and disk drives. Pricing pressure is hurting those particular companies in terms of profit margins. Other sectors are hurting revenues because they sell to Asia. These include 3Com, Motorola and Qualcomm, where they are selling to the far east consumer. For semiconductor equipment companies, their customers would love to buy equipment, but they cannot get the letters of credit. The equipment orders will most likely bottom in this September quarter. The DRAM problem will last for the rest of this year. Recently, in a press release, the Semiconductor Industry Association stated the sale of chips in Asia actually went up in April. This is the second month they were up. Chip sales were also up year over year. I think we are in the bottoming phase right now. There are some weak areas and there are strong areas like communications. The main thing driving this is that we still have double digit growth in personal computers (PC's). In the first quarter, we had 15% growth, 10% in the current quarter, which should be the low and between 10% and 12% growth in the September quarter. There should be a very good fourth quarter, which is when 50% of all PC's sales occur. Q: Those numbers you just gave me, are those the previous years sales? A: Yes, year over year sales. That is a really good point because Wall Street tends to look at the numbers sequentially. When you tend to look the technology business sequentially, you get this big jump in the fourth quarter, which always makes them happy and they run the stocks up. When you look at the numbers on a sequential basis you tend to get 3 flat quarters. The March quarter does not have Christmas in it and that tends to be flat. The June quarter always has been a recovery quarter from the March quarter. The summer quarter usually depends on what goes on in Europe. The Wall Street analysts are looking at the sequential numbers, which look like they are flat or down. We look at the year over year numbers which are showing double digit growth. Q: What about the famous "Intel question," what is their story? A: We sold Intel last August at $101 before the Asian concerns. We publicly stated to buy their stock if it goes under $75 and load up the truck if it goes under $70. At the November analyst meeting, Intel said they would have 3 sequentially down quarters, with June being the low. That information has been recycled by Wall Street over and over to knock the stock down. A few weeks ago Rob Chaplinsky at Hambrecht & Quist said, Intel would not earn the estimated $0.70 this coming quarter and actually earn $0.65 "because things are bad." This knocked their stock down and Intel did something that I have never seen them do before. They released a statement that said, "We have no intention of changing our guidance for Wall Street." I think Intel was upset at Rob because he has a lot of contacts at Intel. They should report the $0.70. Intel will then be through the weak part of the year and then be headed into the strongest part of the year. Q: Do you think this is the absolute low here? A: Yes, they will earn about $3.15 this year. Their PE ratio is the same as the S&P 500. For PC sales this year, the lowest estimate I have seen is by Dataquest which is 90 million units, up from 80 million last year. A more reasonable estimate for this year is 93 million units. PC sales in 1999 will be up 12% to 15% given that both Windows 98 and Windows NT will be shipping. Europe is getting stronger and they have been out of the market for three years. Europe is picking up a lot of the slack that Asia is creating. I think Intel will be at $85 by the end of the year or sooner and our target for early next year is $120. Q: What about Asia, are they starting to stabilize? A: I take Asia very seriously. That is why we sold Intel last August. Asia is not a one quarter waterfall, which the street was worried about in the December quarter of 1997. Asia is in a depression and GDP is down 30% in some of those countries. It is a depression no matter how you cut it! They will not come back until the West comes in with capital. The West will come in and reliquify their banking system, build semiconductor factories and joint ventures. I do not think the impact of Asia is over but, I do think the technology sector of the market has pretty much discounted it. The rest of the market is what worries me. Asia is going to have a big impact on Airlines such as Boeing and Toys R US. Toys said they are having profit margin problems because of what is going on in Asia. They are supposed to be a beneficiary of the Asian Crisis. In the second half of the year, some fairly significant disappointments in S&P earnings will occur because of the pricing pressures and margin pressures coming out of Asia. Q: Do you think that the technology stocks have a brighter outlook in general when compared to the rest of the market? A: I think they do. That is the place where the only real unit growth is. When you look at the unit shipments, demand is good. You have to be careful of the areas where there is clear oversupply, such as in the DRAM and diskdrive sectors. In the second half of this year, I would expect tech stocks, relative to the rest of the market, will start to look good and see some money flow back our way. Q: Where there some specific technology stocks you like? A: We are buying Applied Materials, Intel, LSI Logic, Adobe Systems and Credence Systems. They are all quality companies. We do own some small companies that we think will go up and are buying Diamond Multimedia, Informix, Ross Systems, Mattson Technology and Quickturn Design. It may be early but, we are buying Integrated Device Technology and Cypress Semiconductor. They are being hurt by low SRAM prices. Cymer is another one that we are buying and they essentially have monopoly for their deep ultraviolet lasers. Q: You also cover Intevac don't you? A: We have been buying them. It will probably stay depressed a little longer than the other stocks we own because they are associated with the disk drive industry, which is in the pits. Western Digital is tempting, selling at only 25% of sales, but it is hard to see them making any money this year until the pressure lightens up in the disk drive area. We are buying Intevac, but it is more of a longer term investment. There is no doubt these stocks will snap back. As confidence returns to the technology sector, larger names will lead as portfolio managers buy the big names first. Q: What do you foresee in the Biotech area? A: We have had a lot of delays in terms of announcements of deals and FDA approvals. Last year there were 27 approvals and there should be 50 this year. Ligand Pharmaceuticals and Isis Pharmaceuticals filed for approvals and they should be approved by the end of the year. Biotech stocks have been in a six year bear market and they all look cheap. We try to buy stocks that are going to have specific near term news. The first one is Cephalon. They will soon meet with the FDA and their new drug should be approved. Their stock could hit $20. InSite Vision is about to announce a huge deal with a glaucoma company. Their stock is selling for less than $4 a share and it could have a nice run. Amylin Pharmaceuticals has phase III trials coming at the end of this year for their diabetes treatment. Q: Didn't they have a major partner pull out? A: Yes, J&J was their partner. They gave Amylin $165 million and walked away from the product. They had two phase III trials, one of which was successful with Juvenile diabetes. Q: Do you feel they will be successful? A: Yes, Amylin did nine phase II trials, and the results were all statistically significant in every trial. They did two phase III's and the results were significant in 3 out of 4 data points. They have six remaining trials and I expect those to all be successful. Q: How high could Amylin's stock go if their diabetes drug was approved? A: An early stage biotech company has about a $100 million market cap. When they are a late stage company like Amylin is, it should have a market cap of about $300 million. Once they have an approved drug, the average market cap is $3 billion. Getting a company like Amylin into a $600 to $800 million market capitalization is a perfectly reasonable target, which would be a return of 5 to 7 times on your money. Q: When do those test results come back for Amylin? A: Those results come at the end of this year in Europe. They will have two phase III trials that will be completed in Europe. They will file for European approval early next year. The U.S. trials end in the middle of 1999. The results will be analyzed by the end of 1999 and they will apply for approval in the U.S. in the year 2000. It is a fairly short timeline. Q: What else do you like in the biotech area? A: Many companies are making progress with cancer. It is a very difficult disease with many different kinds of cancer's. It is easier to get approval in that area. Two of the companies we like in that area are Ligand and Isis. Vical and Sugen are also in that area. All four of these companies work inside of the cell in the human body. They work very close with DNA using a variety of techniques ranging from gene therapy, antisense to health signaling to help or start a protein at the source. All of those companies have shown good results in early stage treatments for their products. Scios is a little risky because they have one drug they filed for approval called Natrecor for congestive heart failure. They recently announced a strategic alliance with Bayer. There is a cloud over Scios because one of their drugs has been stopped for clinical trials and no one knows why. It will be a few months before we find out. It has sold off to a point where that drug could be "killed" and Scios would be worth a lot more just based on Natrecor which should be approved in about a year. Q: What about the larger biotech companies? A: We have been buying Amgen. The rap on the company is that they have no products in the pipeline. In truth, they do have a lot coming along. They put money into other smaller biotech companies. We are also big fans of Chiron. They have about two dozen major clinical programs coming along. They will wind up being a consolidator in this business, buying other technologies and companies. Thank You Michael! | ||||||||||||
|
| Home | Hot | SubjectMarks | PeopleMarks | Keepers | Settings |
| Terms Of Use | Contact Us | Copyright/IP Policy | Privacy Policy | About Us | FAQ | Advertise on SI |
| © 2025 Knight Sac Media. Data provided by Twelve Data, Alpha Vantage, and CityFALCON News |