Jubak's Journal Recent articles: • 5 stocks not afraid of inflation's bite, 10/19/2005 • 10 winners for the next oil rally, 10/18/2005 • 5 energy stocks for income investors, 10/14/2005 More... | Jubak's Journal 5 tech stocks to buy before the rally Investors have stopped tuning out tech stocks, and the market is reacting to positive news and guidance. With those signs of life, here are 5 techs to buy now. By Jim Jubak I see a glimmer of life in technology stocks, just in time for the traditional year-end rally. In this column, I'm going to give you five technology stocks to buy now in anticipation of that rally. Many technology stocks -- better make that most -- are still busy revisiting their lows for the last 52 weeks. Cisco Systems But some technology stocks -- better make that a few -- look like they've put in short-term bottoms and have rocketed above important technical support at their 50-day moving averages. Yahoo! What's the difference between the two groups of technology stocks? The stock market is reacting to earnings news and guidance. Companies that report better-than-expected growth and project even modestly improved fourth-quarter results are seeing their stocks rise. Companies like Intel
This is exactly what investors want to see at this time of year. If the technology companies that report good news see the price of their shares go up, it's a sign that investors have stopped tuning out the entire sector and are actually ready to respond to good news. If investors see stocks like Yahoo!, EMC Corp. A change of leadership It may not be obvious from the movement of the big indexes, but we're in the middle of a market rotation, according to Philip Erlanger, editor of Erlanger Squeeze Play. Energy, the sector that has led the market for most of 2005, has dropped from near the top of Erlanger's list to No. 13 out of 18. Utilities, another leading sector for much of 2005, is No. 17, Erlanger says. What's near the top of the list? Health services is No. 1, technology services has moved up to No. 2 and electronic technology is now No. 6. I think this short-term trend toward technology stocks is likely to get clearer if two events play out as I now expect. First, if Hurricane Wilma pushes northward on its current track, missing the energy platforms of the Gulf Coast, that will take the current Wilma premium out of energy stocks and make it easier for investors to see the rotation out of energy. More from MSN Money
And second, if the Federal Open Market Committee meets on Nov. 1 and doesn't do or say anything as terrible as investors now fear, it would remove a huge worry that has kept lots of money on the sideline. The financial markets are already anticipating another 25-basis-point interest-rate hike. If that's all we get, then the markets will take a deep breath and go back to the task of making money on the long side of the market. Nothing is ever certain in the stock market. But I'm confident enough to recommend that you take a look at these five technology stocks as ways to participate in the rally. I'm going to add two of them to Jubak's Picks to increase that portfolio's exposure to the sector. And now, for something truly speculative. The end-of-the-year technology rally is never about fundamentals. It's about hope. Momentum. And money flow. Investors who have tried to make a buck on this seasonal rally in past years know that in most years, the stocks that go up the most are often those with the lowest prices and the best stories rather than the soundest business prospects. Of course, in some years some stocks like this go from cheaper to cheapest. But speculation can have a place in a portfolio if, No. 1, you know you're speculating and put up only as much money as you can afford to lose without slitting a wrist, and, No. 2, you do it in a market with dynamics slanted in favor of your speculation. So for you end-of-the-year speculators (you know who you are), I'm going to recommend shares of Anadigics Anadigics is about as fundamentally sound as a $3 stock ever gets. On Sept. 21, the company raised its guidance for the third quarter, which it reports Oct. 24, on stronger-than-expected sales of its products for GSM wireless phones and personal digital assistants. Mind you, we're not talking about profits here. The company now expects to report a loss of 20 cents to 21 cents a share for the third quarter. But that's a huge 22% to 25% improvement over the loss in the second quarter. The company now projects sales to grow by 17% to 21% from the second quarter. The final kicker to the Anadigics story is the company's plan to sell or spin off the very underutilized state-of-the-art semiconductor factory that it finished in 2001, just in time for the technology crash. The factory has been a drag on earnings ever since. Many investors expect some announcement on the plant by the end of the year. (I'm not adding this one to Jubak's Picks. It's too speculative for that portfolio.) Now all we need, of course, is for that end-of-the-year technology rally to materialize. Updates Shares of Ultra Petroleum triggered my automatic stop-loss target on Oct. 20 when the stock closed below $48 a share. So I'm selling this position out of Jubak's Picks. My timing couldn't have been worse in buying Ultra Petroleum on Sept. 30 right as a rout began in the oil and gas sector. I think the long-term prospects for the sector and this stock are very good, but, quite frankly, I can't tell you when short-term selling taking will give way to long-term buying on the fundamentals. My inclination as an investor is to hold on when I see a long-term favorable fundamental story and simply to take my short-term punishment no matter how bad it gets. But when a sector has a bad case of the willies, as the energy sector does, that short-term punishment can get pretty ugly. Setting an automatic stop-loss is designed to prevent a loss from turning into a bigger loss. Shares of Ultra Petroleum are down 18% since I added them to Jubak's Picks. (Full disclosure: I will sell my personal position in Ultra Petroleum three days after this column is posted.) Shares of Dril-Quip triggered my automatic stop-loss target on Oct. 18 when the shares closed at $37.50, below my $38 closing price stop loss limit. That took me out of the stock that day with a 15% loss since I added the stock to Jubak's Picks. I think the long-term prospects for the sector and this stock are very good -- especially because Dril-Quip sees its biggest gains in revenue in the later stages of the energy cycle. Right now, however, the sector is in a sell-off. It started with investors taking short-term profits and has now spread to indiscriminate selling on falling energy prices. I'm no more immune than any investor into falling in love with my losing positions and setting an automatic stop loss is designed to prevent a loss from turning into a bigger loss. (Full disclosure: I will sell my personal position in Dril-Quip three days after this column is posted.) I've really got nothing against Alcatel for the long haul. I'm selling because I think other, more-volatile stocks will do better if we get an end-of-the-year technology rally, and I don't want to let my technology weighting get out of control. I'm adding two technology stocks with my Oct. 21 column and selling two to keep my dollar-weighted technology exposure constant. I have a 3% gain since I added Alcatel to Jubak's Picks on July 19. Increasingly, the technology sector seems divided into two parts. First, there are the companies that manage to sell more units but that see revenue growth stall anyway as the price of what the company sell drops faster than the company can cut costs. Second, there are the companies that are selling so many more units that revenue growth accelerates even though the prices of the company's goods are declining. Unfortunately, like Intel Arris Group reports earnings on Oct. 26. If the company's guidance is an indicator, investors will see a great quarter. On Oct. 12, the company raised its projections for the third quarter to show revenue growth of at least 54% from the third quarter of 2004 and earnings growth of at least 438%. The driver for these numbers is the explosive demand from cable customers such as Comcast Marvell Technology doesn't report until Nov. 26, but investors got a solid preview of the company's results when competitor Broadcom New developments on past columns 10 winners for the next oil rally When will the sell-off in oil and gas (and coal and pipeline and ) stocks be over? That's an important question for anyone who believes, as I do, in the long-term uptrend in the energy sector and who would like to build positions (but who isn't happy with short-term losses). One theory is that the turn in energy stock prices will come in late November or December with the turn in crude prices when inventories peak. The last significant sell off in oil-and-gas exploration and production stocks, according to Morgan Keegan & Co., took place in the second quarter as inventories of crude built as a result of a flood of oil imports and slow withdrawals by refiners running below capacity. The sell-off, which began roughly on April 6 and lasted for five to six weeks, took oil and gas stocks down about 20%. It ended when crude oil inventories peaked in mid-May at 334 million barrels and began a decline that took inventories to 305 million barrels on Sept. 30. Last year, Morgan Keegan points out, crude oil and oil and gas stock prices turned in late December when crude inventories peaked. If this theory is right, and it makes sense to me, then we're at least a month or so away from the best entry point into the energy sector. 6 stocks for a second-half growth rally Komag Buy gourmet stocks at fast-food prices Whew! No new surprises. On October 18 Corn Products International 5 stocks for a post-election stock rally On Oct. 19 EMC Editor's Note: A new Jubaks Journal is posted every Tuesday and Friday. E-mail Jim Jubak at jjmail@microsoft.com. At the time of publication, Jim Jubak owned or controlled shares of the following equities mentioned in this column: Corn Products International, Dril-Quip, EMC, and Komag. He does not own short positions in any stock mentioned in this column. | |||||||||||||||||||||||||||||
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