Tech Highfliers Failing to Regain Momentum
“Buy His Stock” declares the May cover of Worth magazine, emblazoned with the smirking mug of Cisco Systems Chief Executive John Chambers.
“No thanks,” many investors suddenly are saying about the computer networking giant’s shares.
The same Cisco Systems that was one of the most sought-after technology stocks earlier this year--and which briefly became the most valuable company on the planet in March--is struggling to stay above its closing low price reached in the mid-April tech-stock plunge.
On Wednesday Cisco shares led the tech sector lower again, falling $2.56, or 4.2%, to end at $58. That is the lowest close since the stock finished at $57 on April 14 in the massive Nasdaq market meltdown.
The continued selling pressure on many tech stock leaders is discouraging analysts and investors alike who had hoped that the sector’s mid-April lows marked the bottom for the market.
At its closing low on April 14, the Nasdaq composite index, of which Cisco is a major component, fell to 3,321.29, a stunning 34.2% drop from the record high close of 5,048.62 reached on March 10.
The tech sector then bounced back, pushing the Nasdaq index to as high as 3,958 on May 1. But renewed selling has kept many tech issues under pressure since.
The latest attempt at a sustained rally ended Wednesday, when the Nasdaq index fell 72.61 points, or 2%, to 3,644.96 after rising for four days. Even that rally had disappointed some pros, because it occurred amid light trading volume.
Nasdaq’s biggest stocks are key to determining the market-capitalization-weighted index’s trend. And amid the tech-stock plunge of late March and early April, a popular notion on Wall Street was that the biggest tech issues would hold up well, because many investors would never abandon names that had become “must own” stocks of the so-called new economy.
Cisco was perhaps revered above all others because of the company’s stellar earnings growth over the last decade, its shrewd management headed by Chambers and its enviable position as one of the principal builders of the global Internet infrastructure.
“Is John Chambers the best CEO on Earth?” asks the cover of the May 15 issue of Fortune magazine.
But at $58 now, Cisco shares have fallen 27.5% from their record high close of $80.06 on March 27. Instead of being a buffer for the Nasdaq index, Cisco now is down about as much as the index overall from its peak.
Other tech-stock leaders also are struggling to regain momentum:
* Microsoft, embroiled in an epic antitrust battle with the federal government, is down 43.6% from its 52-week high. The stock fell $1.81 to $67.69 Wednesday, heading back toward the 52-week low price of $66.19 reached on May 10.
* Agilent Technologies, the test and measuring equipment giant spun off from Hewlett-Packard, slid $10.50 to $78 on Wednesday as investors reacted poorly to the company’s quarterly earnings report issued late Tuesday.
The company matched expectations, but analysts now are worried about weaknesses in Agilent’s health-care unit. The stock, which soared in March, now has fallen 52% from its peak. Its recent closing low was $76.56 on May 11--and it nearly touched that level at its intraday low Wednesday.
* Intel, down 15% from its peak, is faring better than most tech leaders. Yet the stock gained just $1.31 to $123.19 on Wednesday, even after the company announced a 2-for-1 stock split and an increase in its tiny cash dividend.
Ordinarily, a split announcement by Intel would viewed as a great excuse to buy the stock.
For many investors, the basic problem with the tech leaders may be the problem dogging all tech shares: No matter how great the companies’ prospects may appear, the stocks still are extraordinarily expensive relative to earnings--even after their plunge of the last two months. Cisco still is priced at 111 times its expected earnings per share this fiscal year.
It became popular to believe, amid the tech sector’s surge in 1999 and early 2000, that valuations didn’t matter. But the latest action in the stocks suggests more investors are paying attention to valuations--and don’t like what they see.
Briefly: If inflation is really a worry, nobody told the gold market. Gold fell for a third day on Wednesday, reaching an eight-month low. Near-term futures in New York fell $2.40 to $273.10 an ounce. Part of gold’s problem is technical: The strong dollar is spurring more sales by foreign gold producers looking to reap currency gains.
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A Leader Suddenly Struggles
Shares of computer networking giant Cisco Systems, the No. 1 choice of many tech investors earlier this year, are struggling to stay above their low reached in the mid-April market dive. Daily closes and latest on Nasdaq:
Wednesday: $58.00,
down $2.56
Source: Bloomberg News
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Another Former Leader, Now Laggard
Shares of Microsoft Corp. continue to struggle amid the company’s titanic antitrust battle with the federal government.
Weekly closes and latest on Nasdaq:
Wednesday: $67.69,
down $1.81
Source: Bloomberg News
