By: Moderatore on Domenica 30 Marzo 2003 21:05
N.B.
facciamo quello che possiamo, è domenica ed è mancata la comunicazione a chi doveva copiarlo, ecco copia del pezzo
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....Investors, like just plain folks, are riding an emotional yo-yo, with spirits continually rising and falling in keeping with the flavor of the latest news from Iraq. The swings, as measured by the ubiquitous polsters, can be quite dramatic: Friday before last, over 60% of those asked thought the war would be over quickly; by Monday, barely 40% did. And feelings apparently are a little hard to sort out: A recent Gallup poll found that large majorities of Americans own up to the war making them oddly more confident and more sad -- or maybe, given the long and rather leisurely prelude to its outbreak, it's not so odd that people have had time to reflect on both sides of war.
That same poll, incidentally, cast into doubt the pet conviction of Mr. Greenspan, most economists and the congenitally bullish Wall Street crowd that the war (or "geopolitical" crisis, as Mr. G likes to call it) is the root of our economic malaise. No fewer than 91% of those queried by the Gallupers insisted that the war had not induced them to postpone a major purchase.
Which kind of makes you wonder when the war does end and the economy's travails don't, what the Fed and its counterparts in the real world will come up with -- global warming, perhaps, or that dreadful new respiratory disease -- to avoid admitting that the trouble with the economy, pure and simple, is that it can't shake free of the post-bubble throes.
OBVIOUSLY, THE WAR -- and its extended, creeping approach -- has had some impact. Consumers have spent a lot of time in front of their TV sets transfixed by the images and scenes of conflict and confusion in Iraq; not only has that been bad for their eyes and their brain cells, but it's also kept them from shopping. And, more likely than not, all those terrorism alerts issuing from Mr. Ridge and his color-crew have persuaded many a nervous citizen against a trip to the mall.
What's more, reports the redoubtable Fred Hickey, the tech business, for one, got some artificial respiration in January and February when companies stocked up all kinds of electronic components -- disc drives, semiconductors, that sort of thing -- in advance of the war. Lots of wild-eyed investors took this precautionary inventory build as the real thing and began piling into chip stocks (the Philadelphia semi index is up 10% or so since mid-January) and, faster than you can say "quick buck," the momentum gang gunned a slew of high-beta ("volatile and risky," for those who prefer the mother tongue) shares. Any gains these intrepid traders may be enjoying are destined to vanish quickly, probably before Iraq does, Fred prophesies.
Fred Hickey, as we're sure you know by this time, is the feisty, bright and extraordinarily knowledgeable owner-author-publisher (he may sweep up the place, too) of the High-Tech Strategist who claims Nashua, N.H., as home. Fully loaded for bear, Fred was last featured in this space on Dec. 16 with Rhonda Brammer doing the honors. Graced by Rhonda's stylish prose and razor-sharp commentary, it was a terrific piece in every way, and Fred was very much on the money.
He deemed the run in tech stocks late last year as all speculation, and citing a conspicuous lack of demand for PCs, dismissed the strength in component and chip sales as nothing more than inventory restocking. On all scores, he was proved dead right. His favorite shorts at the time -- Dell Computer, Intel, Texas Instruments and Applied Materials -- sold off 15% or so in the month that followed, as one company after another lowered earnings estimates.
Thinking it might be timely and opportune (to say nothing of fun), we cajoled Rhonda into doing a reprise, Fred willing -- and happily he was. What follows is the essence of Rhonda's chat with him very much as she relayed it to us.
As indicated at the start of this blurb, Fred thinks that what we're witness to in tech is a repeat of three months ago, but even worse -- lots of speculation and brisk build-up of inventories in the face of downright "awful" fundamentals. As Exhibit A he cites the sorry earnings preannouncements of the three biggest direct resellers of computers, CDW Computer, Insight Enterprises and PC Connections, and of GTSI, a leading seller of information-technology products to federal, state and local governments.
His measured conclusion: "The computer business stinks."
So when companies such as Intel noted a while back that microprocessor sales were a tad better than expected, what, Fred asked rhetorically, does that tell you? Rhonda refrained from answering the question, sensing that he was eager to, and he did: There's a build-up in inventory. And, as tech outfits begin to own up to how things really are in their "earnings guidance" for the second and third quarters, all those venturesome souls who poured into tech stocks, Fred is certain, will be hung out to dry.
He's short Intel at 17 because "he's betting two weeks from now Intel's going to cough it up and announce that second-quarter revenues won't be what it expected." The stock sports some big multiples -- 34 times earnings and over four times sales -- and he's looking for it to sell off 15%-20% in an April market downdraft. Longer term, the outlook is dimmer still, he feels, with Intel shares likely to trade around their historical norm of, oh, 14 times earnings and twice sales. That would put the stock at $7-$8.
Fred's also short IBM, a perennial nonfavorite of his. As the "behemoth" of the industry, he sees it prey to all the ills besetting information technology. No way, he says, that earnings are going to ramp up the way analysts claim so that the company will net $4.32 this year, compared with $3.95 in '02. For one thing, it doesn't have the cash to hype per-share profits, as it has been doing for years, by buying back stock. For another, the company lowered the anticipated return on its pension fund and back in October estimated that its pension income would be cut by $700 million this year. He's content to sit back and wait for analysts to make the inevitable agonizing reappraisal of earnings estimates.
He's bearish, too, on KLA-Tencor, a chip-equipment maker whose shares have run from 25 in October to around 38, where they sell at some 44 times earnings and five times sales. The action of the stock belies the melancholy fact that the chip-equipment business is in the dumps and there's no sign of a turn. It wouldn't knock his socks off if over the long pull the shares in time were cut in half.
Finally, Fred's short Ebay. He has no quarrel with its business model, but the stock at 89, up from 50 in the fall, strikes him as wildly overpriced. Indeed, the market is valuing the company, which has sales of $1.2 billion, at an eye-popping $27 billion. Come the April break, reckons Fred, Ebay could easily take a hit of 20 points or more.
More from a sense of reportorial obligation than anticipation of a positive answer, Rhonda asked Fred if he were buying anything. Well, as a matter of fact, he has been buying one stock, and a tech, at that: 3Com, a computing networking outfit.
The name, we suspect, rings a bell; it did for us when Rhonda mentioned it. We fondly remember it as one of the highfliers of the late bull market and vaguely recall it crashed to earth when virtually all of that vast and wonderful species fell from the sky. And sure enough, the shares, which sold at $119 in 2000, are trading at a bit more modest $4.50 a share these days.
"I used to be short the stock," Fred volunteered. "I hated their accounting." But things have changed, he assured Rhonda. The company has bit the bullet, cleaned up its act and performed all the other clichés of contrition. It's still in the red, but now has six months of positive cash flow under its corporate belt.
He bought the stock after he kept hearing good things about its technology -- that, in fact, it was winning awards. 3Com, busted stock and all, has a "venerable" name, Fred recounts, and occupies a niche in supplying network equipment to medium-sized businesses. It's also active in modular switches, voice-over IP (Internet protocol, which we hope means something more to you than it does to us) and wireless local area networks.
What really got Fred's attention after buying the stock was 3Com's disclosure of a joint-venture with Huawei Technologies, probably the premium IT company in China. The joint venture may enable 3Com to become a significant competitor to Cisco. For the Chinese company has the technology for high-end routers and switches, which will allow 3Com to compete in the upper-end of that market while gaining access to incredibly cheap labor that could reduce costs dramatically. Huawei, we should mention, is the target of a suit by Cisco alleging theft of intellectual property, but since the action was filed before 3Com entered into the joint venture, Fred surmises that the company probably viewed it as an acceptable risk.
Should 3Com become a viable alternative to Cisco, the payoff, needless to say, could be huge. But what Fred really loves about 3Com -- a sentiment seconded by Rhonda -- is that he can buy the business for "virtually nothing."
For here's a company with positive cash flow that's selling at $4.50 and has -- get this -- nearly $4 a share in cash after you deduct long-term debt.
