Big Plans, Big Crash

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08 Aug

The Tech Bubble Times – Remember Those?

Posted in Market History, Markets on 08.08.13

scEach of the Mutual Fund contestants began the yearlong contest with a $100,000 hypothetical investment in six stocks. Two of the stocks remain in place for three months, two for six months and two for the full year. Contestants include investors, analysts, portfolio managers and channel executives, who pick under code names. The CRN Grab Bag comprises stocks picked at random from a list submitted by CRN editors.

Proving the market confusion, the CRN Grab Bag outperformed many of the experts in the most recent quarter. CRN’s picks moved up to third from ninth place in the third quarter, attaining a value of $120,829, up from the June 30 mark of $111,231.

Taking the lead at the end of the third quarter, by moving up from second during the period, is 1997’s defending champion Raging Elk. The channel executive saw his portfolio rise 4.1 percent from the half-year mark of $128,681.

Propelling Raging Elk to the top spot was three-month pick Apple Computer Inc., which has risen 32.8 percent since June 30; and one-year picks Intel Corp. and Microsoft Corp. Microsoft has rocketed 70.4 percent so far this year.

For the fourth quarter, Raging Elk is replacing Apple and his other third-quarter pick, 3Com Corp., with Network Associates Inc., a supplier of enterprise network security and management software; and Dell Computer Corp., despite the fact the stock has dropped 41.4 percent since June 30.

“As a disciple of the channel, I still must give credit where credit is due,” said the channel executive. “Dell has defined a new [price-to-earnings] paradigm on Wall Street.”

Raging Elk is not alone in picking the direct-only computer maker. Two other contestants-Martin Wolf, president of Martin Wolf Associates, and channel executive Black Knight-also chose Dell for their three-month picks. “The company is winning the [PC] war,” Wolf said.

amcPerhaps most disappointed with his third-quarter performance was Hambrecht and Quist Senior Technology Analyst Todd Bakar, who dropped from the coveted No. 1 position to sixth place. While most of Bakar’s stocks experienced gains-among them Macrovision, Transaction Network Services and Applied Micro Circuits Corp.-Bakar witnessed a steep decline in three-month pick Daou Systems Inc., a health-care computer network provider that has dropped a precipitous 74.9 percent during the past quarter.

Bakar hopes to regain the top slot with new three-month picks Remedy Corp., a developer of enterprise resource planning software; and contract electronic manufacturer Sanmina Corp.

“Sanmina is a great company,” said Bakar. “It’s stock is inexpensive, having taken a pounding after falling shy of [analysts’ expectations] last quarter. But I expect the stock to bounce back.”

Following Raging Elk’s tracks, and moving to second place from 11th, is RAM Partners’ Matthews. The investor profited in part by shorting six-month selection Oracle Corp.; and by going long for the year with Unisys Corp., which has shot up 63.9 percent so far this year.

For 1998’s final quarter, Matthews is betting he will continue do well by shorting: in this case, a thumb’s down to IBM Corp. and Onsale Inc. The latter is an online auction company whose business model, said Matthews, is shakier than competitors’ because it carries all the merchandise it sells and, therefore, must contend with inventory obsolescence.

IBM is generating earnings more on the strength of financial and tax management than on its product line, he said. “The company’s [electronic-]commerce business with the channel lacks coherence,” he said. “Its stock is approaching an all-time high just as its prospects are eroding.”

Channel executive Data Master, who dropped to fifth place from third, is more bullish on the PC manufacturer. He bet long on IBM in part, he said, because the company traditionally does about 35 percent of its business in the fourth quarter, and because it has a mainframe product line that “is a hell of a story.”

Moving up two notches during the quarter was IPS Millennium Fund Portfolio Manager Robert Loest, who sits in fourth place at $119,078. Loest rose mainly on the strength of one-year pick EMC Corp., a maker of computer storage devices whose stock has rocketed 108.3 percent since January.

Loest was less fortunate with other picks: Software vendor Sterling Commerce Inc. has come down 28.6 percent since the half-year mark; Applied Materials has fallen 16.2 percent since the start of the year; and three-month selection Qwest Communications has dropped 10.1 percent since June 30.

For the final quarter of the contest, the portfolio manager is flagging three-month picks that might realize a faster return than Qwest: Earthlink Network Inc., an Internet gateway; and Verio Inc., a provider of Internet connectivity, Web hosting and other Internet services to small and midsize businesses.

That high-tech’s future is so tightly linked to advances in telecom and datacom equipment is a recurring theme among contestants this quarter. Thus, several players are betting in favor of companies offering hubs, high-speed routers, switches, local loops and the like.

For example, California Technology Stock Letter Editor Michael Murphy, who sits in 12th place, replaced third-quarter pick Cymer Inc. with Premisys Communications Inc., a maker of integrated access products that connect users to high-speed networks via copper wire.

“Premisys’ stock is trading at less than 10 times its earnings,” Murphy said. “The company is the leading player in its industry.”

Also betting on network equipment providers is Wolf, who is in 15th place and chose Cisco Systems Inc.; and Kelley Williamson, a private investor who opted for wireless solutions providers that cater principally to emerging market companies lacking in landline telecom equipment.

Williamson’s three-month picks included P-Com Inc., a maker of point-to-point communications for shortwave radios; and Advanced Fiber Communications Inc., a wireless local loop provider. “The company’s growth is awesome-60 percent in the June quarter. And the stock is dirt cheap,” he said.

Williamson is hoping his new picks will catapult him into a more competitive position. The private investor sits in 18th place at September’s close, owing to the uniformly dismal performance of his six picks. Those selections-among them Merisel Inc., equipment makers Cymer Inc., RIT Technologies Ltd., MRV Communications and Galileo Technology-left Williamson with a portfolio value of $34,170 at the end of the third quarter.

Others focusing on telecom/datacom equipment companies in the fourth quarter are Gerard Hallaren, vice president of Invesco Funds Group, who opted for 3Com and laser subsystems/fiber optic maker Uniphase Corp.; Black Knight, who bet long on Lucent Technologies Inc.; and Prudential Bear Fund Portfolio Manager David Tice, who sits in the basement with a portfolio value of $30,785.

Tice, however, is not singing Lucent’s praises. He is shorting the equipment maker, believing it will experience a downturn in the fourth quarter because capital is drying up for companies that invest in voice and data networking equipment. “[Lucent] has taken write-offs for six of the last 10 quarters,” Tice said. “Its stock is selling for an outrageous price and is bound to go down in today’s bear market.”

As in the third quarter, Tice for the final three months of 1998 also is shorting Applied Magnetics Corp. The storage maker, he said, is among the weaker players in a disk-drive industry that suffers from depressed prices and excess production capacity. Applied Magnetics as a short in the third quarter was among Tice’s best-performing stocks, due to a 44 percent price decline. Meanwhile, Yahoo Inc. and Lycos Inc. have been poor shorts, with Yahoo up 274.5 percent and Lycos up 63.9 percent for the year.

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