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INTERNET STOCK NEWS [tm] http://www.123jump.com ISN Ones to Watch 1/7/2002: Fads Versus Value _______________________________________________________ TABLE OF CONTENTS 1. Overall Sentiment 2. Observations 3. Weekly Portfolio Results 4. More $10 Temptations 5. Sonny T. Returns From Japan 6. IBD Retail Leaders 7. Comment Welcomed -------------------------SPONSOR--------------------------- Tech Buyback Portfolio Posts Stellar Gains: +39.23% YTD! David Fried knows a stock is undervalued when the company buys back its shares. That's how he earned 39.23% YTD in techs while the benchmark Nasdaq fell 21.82%. 'Buy these 5 techs today,' Fried says. Get them with a FREE trial: http://www.investools.com/c/go/BACK/JFN-backTX1 ---------------------------***----------------------------- 1. Overall Sentiment The major indexes gained in the holiday-shortened week of Dec. 31-Jan. 4. The first three days of 2002 were plus sessions. If the so-called January Barometer is accurate and these first five days are marked by an advance in the popular indexes, it bodes well for the entire year. Over the past five sessions, the number of stocks making new highs at the Nasdaq and the Stock Exchange has consistently exceeded 100 issues. The total of new lows each day has barely reached 30 stocks. But, this has been the case throughout most of the rally since Sept. 24. Clearly, the market is building its confidence not only in stocks already displaying good relative strength characteristics. It is also finding favor with beaten up issues. After some 14 weeks of advance, the "bargains" out there to be had that are based strictly on price are few and far between. CNBC regularly features Art Cashen, a veteran floor trader at the New York Stock Exchange, who provides brief tutorials to the viewer/investor. Art's latest missive was Friday evening in which he advised the viewer/investor not to pay too much attention to the market fads that will occur this year. Instead, he advised that folks should buy quality issues on a regular basis. What Art described was a mechanical method of investing usually called dollar-cost-averaging, which is how I buy stocks through my ShareBuilder plan. I make no attempt to chase fads with this portfolio of 34 stocks. However, this doesn't mean money can't be made chasing fads - provided you get in relatively early. And, if you think you're a little late to the party, not to worry - it's quite likely investors will see many fads in 2002. 2. Observations On my weekly Saturday taxi excursion to the supermarket, the price for a gallon of regular at the convenience store on Market Street jumped two cents to $1.07.99. Four weeks ago, the price was $0.97.99. To me, it shows how sensitive fuel dealers are to what OPEC does with its daily production quotas. It's not fair, I tell you! It's just not fair! But, it's a reality we all have to deal with. Meanwhile, the investment gurus on the TV stock market channels continue to tout oil and gas exploration stocks. Most of them have come up off the mat since making bottoms in November and December. But, can they outperform in 2002, a year in which everyone seems to agree will be dominated by a strong rebound in tech stocks. Friday, Jan. 4, was a session in which a few Wall Street firms weighed in with strong recommendations for semiconductor, data storage and software stocks. Consider this an opening salvo as it pertains to which industry sectors Wall Street will be pushing as the market heads into Earnings Season. In my view, the intent is to first force investors, both individual and professional, to dismiss the year-over-year comparisons of Q4 results, which will be lousy, and second to make them focus on the impending economic recovery in the latter half of the year. If the January Barometer turns out to the bullish for the entire month, it means that the rising tide that began Sept. 24 will reach some 18 months of duration. At that point, Wall Street may begin taking profits in February, then follow up with some downgrades of stocks that have advanced anywhere from 50% - and in some instances - more than 1000%. But I've been wrong before. The Jan. 4 edition of Investor's Business Daily in its Internet & Technology section featured a brief interview by James Detar with Newt Gingrich, the former Speaker of the U.S. House of Representatives. According to the interview, Newt has become a major lobbyist in Washington for the science of nanotechnology, or the construction of things at the molecular (and even smaller) atomic levels. Newt has always liked gadgets. However, the last question intrigued me. "You once said schools should give every child a free laptop." Newt's reply: "Every child having a laptop would be a breakthrough in the 21st century. A free textbook was a radical idea in the late 1800s. Computer costs are declining. There's no reason we can't provide every child with a laptop within a decade." 3. Weekly Portfolio Results In last week's newsletter I mentioned that this ISN Ones to Watch Model Portfolio of 16 stocks would only include the six stocks I picked that actually had a benchmark price, based on the market open July 25. To be honest, I was simply too lazy to include an entry point for the other nine. However, a couple of readers e-mailed asking about yearly performance, so I realized I had to provide some kind of measure of performance on which I could be judged. It should be pointed out that not every investor begins his or her investment career on the first trading day of the year. As it stands, here are the six stocks I picked with entry prices and how they've done since July 25, based on the market close Jan. 4: SEI Investments (SEIC) 46.45, down 1.5% Alloy Inc. (ALOY) 15.37, up 51.6% Pharmaceutical Product Development (PPDI) 36.76, down 16.4% Daktronics (DAKT) 9.12, down 7.8% EarthLink (ELNK) 16.42, down 20.5% SonicWALL (SNWL) 20, down 2.4% The three water-related stocks that were "purchased" at the market open Aug. 1 are in the black. Tetra Tech (TTEK) 17.18 (split adjusted), up 17.5% American Water Works (AWK) 31.35, up 34.1% SCP Pool (POOL) 26 (split adjusted), up 1.2% Moving on, let's turn to this Sweet 16! Portfolio of high- profile technology stocks that I've been regularly tracking since late July. As regular readers are aware, these stocks have been steadily declining even before the time I first began writing about them. Nearly all of them reached new 52-week lows in a panic sell-off after the market reopened for trading Sept. 17. Then they rallied. Let's do a brief review of each stock: Comverse Technology (CMVT), up 71% from a low of 15.30, the stock reached its lastest 52-week low in October. Its trailing 12-month P/E ratio of 22 times earnings is also the lowest among the Sweet 16? The historical five-year average growth rate is roughly 30%. Vodaphone Group (VOD), up 49% from a low of 17.97, the stock reached a 52-week low in August and is roughly ten points below the 52-week high of 36.50. This is the leading wireless services provider in Europe with a strong presence in the U.S. Micromuse (MUSE), up 187% from a low of 5.30, the shares neared 20 in early December before pulling back to 15 and have trended sideways for a the past 20 sessions. Here's one poised for a breakout if the tech rally continues. Corning Corp. (GLW), up 55% from a low of 6.92, Corning stock rallied to above 10 a share in the past week on news that management has called back to furloughed workers at its Concord and Wilmington, NC plants. The news also helped JDS Uniphase (JDSU) rally above 10. BEA Systems (BEAS), up 110% from a low of 8.94, the shares have rallied above the 50-day simple moving average (SMA), but still see the 200-line, currently around 23, as a barrier. The stock gained 10.9% last Friday on an upgrade of the enterprise software sector from a major brokerage firm. CIENA Corp. (CIEN), up 79% from a low of 9.20, the stock rallied above the 50-day line, then dipped below it after the company warned that sales wouldn't meet previous forecasts in 2002. In my view, Fiber Optics networks are still at overcapacity. Juniper Networks (JNPR), up 142% from a low of 8.90, the stock displays a pattern similar to CIENA in the aftermath of a warning about lower-than-expected sales. Check Point Software (CHKP), up 132% from a low of 19.56, the shares continue to advance, and are on the cusp of crossing the 200-day SMA. Still, that is some distance from where the shares traded 52 weeks ago at 113. In my view, the market has focused on players in the security software space with smaller market caps, such as McAfee.com (MCAF). EMC Corp. (EMC), up 68% from a low of 10.01, the volume was well above its 3-month daily norm last Friday in response to a brokerage house touting of data storage stocks. Network Appliance (NTAP), up 346% from a low of 6.00, this stock is the hands-down winner since the 9/11 Attack on America, trading the farthest above its 200-day SMA. In fact, the price has returned to the previous high that occurred in May. There are still 51 trading weeks left in 2002, and anything is possible, even a return to levels of 75 a share 52 weeks ago. Genentech (DNA), up 40% from a low of 37.90, this is a megacap biotech stock at $28 billion. The biotech sector tanked during the Feb-March sell-off, rallied, then tanked again during the post-9/11 panic sell-off. Biotechs are the trickiest sector among high-tech stocks. One thing is certain: most are well-capitalized. Nokia Corp. (NOK), up 106% from a low of 12.70, this leader in mobile handsets has made Motorola (MOT), the No. 3 producer, look pale in comparison. If tech is to recover in 2002, then Nokia is a good bet to return to where it traded a year ago at 45, or another 90% from current levels. Alcatel (ALA), up 78% from a low of 10.53, this French optical networking and telecom equipment maker offered for Lucent Technologies (LU) last year and was promptly turned down. Meanwhile, Lucent stock can't get out of its own way, trading in extremely narrow range from between 6.50 and 7.50. I2 Technologies (ITWO), up 195% from a low of 2.98, it remains the lowest-price stock among the Sweet 16? Still, it continues to trade above the 50-day SMA on above-average volume. Veritas Software (VRTS), up 178% from a low of 17.30, the stock has crossed the 200-day SMA in the past five trading sessions, making it the sixth stock to do from this group of 16 stocks since the 9/11 tragedy. Business Objects (BOBJ), up 112% from a low of 17.00, this French business intelligence software firm continues to inch steadily higher, and is the closest to the 52-week high among the Sweet 16? Conclusion: CIENA and Juniper have weakened, while much of the overall stock market has moved higher. Can we safely say that these two former high-flyers are leftovers from a bygone era? Be mindful of Art Cashen's advice to the CNBC viewer/investor as it pertains to this fad business and how the market will behave in 2002. 4. More $10 Temptation Last week's newsletter contained a section about stocks trading under $10 that have rallied off extremely low prices (under 3 share or lower). They basically belong to what Wall Street calls the B2B sector. I did a check of how they stack up according to ratings supplied by Investor's Business Daily at its www.investors.com Web site. What've I've found is that these stocks carry an accumulation/distribution ranking of B or above (A is the highest), based on the past 13 weeks of data. More interesting are the relative strength (RS) rankings versus the earnings per share (EPS) rankings. The RS rankings are very high, while the EPS rankings are, to be honest, dismal compared with the overall market. Still, this is where the trading action has been in the past few weeks. The daily volume figures have been well above the 13-week norm for these B2B stocks. In fact, I have personally traded Ariba (ARBA), Inktomi (INKT) and i2 Technologies (ITWO) on a few occasions since 9/11. My trades have been entirely for the day, going long only. By the time this newsletter appears in e-mail boxes, Ariba In Richard Ney's "The Wall Street Jungle" the author supplies 21 rules for investors. Rule No. 2: "Nothing puzzles me more than an investor's willingness to pay more than fifty dollars a share for stocks. Buy low-priced stocks. It's percentages you're after and you'll get them in these stocks in a bull market." I still like the Peter Lynch philosophy, even when it comes to low-priced stocks. Of the five stocks you buy, one will a screamer, three will be so-so, and one will be a dud. Aside from the three stocks already mentioned, the other two are Clarus Corp. (CLRS) and Commerce One (CMRC). Then there is a sixth B2B stock, Manhattan Associates (MANH), a component of the Standard & Poor's SmallCap Index. In the Computer-Integrated Systems group, which is how IBD ranks Manhattan Associates, it has the highest ranking of the 39 stocks in the group. It also trades substantially higher than $10 a share, closing last Friday at 33 and change, with a trailing 12- month P/E ratio of 53. It should be pointed out that the other five stocks have no P/E since, which implies that they've had no earnings in the past 12 months. So what gives? Maybe this message from a chat board for i2 Tech might explain it: "Based on pure technical reason, I doubt fundamental will work in this market this year, because economy is bad and PE of not just I2 but the entire market is ridiculously high. Thousands of new laid off works will not help the imaginary economy recovery. Uncle Greenspan knows that the market is the economy, as CEOs made decisions based on market prices. Greenspan is pumping money anywhere from 5 to 20 billions of repo money in the system everyday. The repo money is being used to prop up the market. In short, PE does not matter for the time being. And I2 simply has a very good chart, with very strong accumulation. Please note that this is purely a trade and not a suggestion for anything longer term than the second Greenspan slowing down the printing press." This message from a chat board that mentions these "repos" has a large influence on the prevailing direction of the U.S. stock markets, much less individual stocks. More about this subject in another newsletter. 5. Sonny T. Returns From Japan I spent nearly one hour on the phone with Sonny T., a former IBM employee, who has turned to full-time trading using a system based on William O'Neil's CANSLIM method. Sonny, whose wife is Japanese, spent the holiday season with her parents in Tokyo. He reports that apartments rent for $20,000 a month! On his return, Sonny says that he has resumed trading, but he is still working on the notion of trading for a living. If he does, he's going all the way by setting up his trading systems as a business. Among other things, this means filing with the IRS for professional trader's status. Since he doesn't have a full week's worth of data for the software he uses, Sonny said that he would e-mail me his latest picks and trading results in a spreadsheet after a full week is completed. He did mention his system likes Hotel Reservations (ROOM), an online travel services firm that is majority owned by Barry Diller's USA Networks (USAI). Diller has sold his TV and movie divisions to Vivendi (V), the huge French entertainment conglomerate, leaving him with a wad of cash to develop his online holdings that also include TicketMaster (TMCS) and Expedia (EXPE). Let's wish him luck, for trading full-time is extremely difficult. 6. IBD Retail Rankings Last week I submitted two picks from the retail sector - one long and one short - due to reader interest and the fact 123Jump.com has moved its Internet reporter, Iliana Sahandjieva, to cover retail companies. My long pick of Bed, Bath & Beyond (BBBY), a steady 30% grower in the home furnishings segment, was "purchased" at the market open Jan. 3 at 33.49. It finished the week at 33.81 for a gain of 0.6%. My short pick of Tiffany & Co. (TIF), a leader merchandiser of luxury goods, was entered at the market open the same day at 31.05. The shares finished the week at 32.51 for a loss of 3.6%. Investor's Business Daily gives Bed, Bath & Beyond an overall ranking of 99, or A+, while Tiffany & Co. is rated 91, or A-. With Tiffany carrying such a favorable ranking, this short pick is a contrary play. My chief reason for going short is the stock price is still well-below the 52-week high and didn't rally as powerfully as other retail stocks in the aftermath of the 9/11 tragedy. In the Retail-Misc/Diversified Group that includes BBBY, the current leader is Gart Sports Company (GRTS), ranked first in overall, technical and attractiveness ratings. However, Gart Sports is weak in fundamentals, with an EPS rating of only 47. But the one-year chart looks good. SEE: http://finance.yahoo.com/q?s=grts&;d=c&k=c2&p=m50,m200 What's also interesting to observe is this sporting goods retailer's market capitalization of only $245 million, which barely qualifies it as a small-cap stock. Can the bullish trend for small-cap and even micro-cap stocks continue? Fund managers seem to think so, and so do investors, who continue to pour money into them. As long as money flows your way, you have to put it to work. Let the trend be your friend in 2002 and beyond. ------------------------SPONSOR-------------------------- Haven't refinanced yet? Take advantage of the lowest mortgage rates in years. Save big with IndyMac Bank, the #1 rated mortgage website by Gomez.com for the last 4 quarters. IndyMac Bank guarantees to beat, not meet, any mortgage by $300! Click below for a free quote: http://www.123jump.com/partners.htm?id=102 -------------------------***----------------------------- 7. Comment Welcomed A resident of Wilmington, NC, Dave Jennings performs market research for Ticker magazine, a monthly publication for financial professionals. Dave enjoys reader comment and replies to all e-mails. He can be reached at djennings@ec.rr.com or djennings@ticker.com. ----------------------------------------------------------- INTERNET STOCK NEWS (ISN) © 2001 Disclaimer: The material herein is for informational purposes only and should not be deemed an offer or solicitation on our part with respect to the sale or purchase of any securities. http://www.123jump.com/disclaimer.htm ----------------------------------------------------------- -------------------------------------------------- You are currently subscribed to Internet Stock News Weekly as: alewis@enron.com To Cancel your subscription please go to: http://123jump.com/confirm.htm?listid=117996&;mid=115298 To Change your subscription please go to: http://123jump.com/letters.htm?S=L&;email=alewis@enron.com
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