Technology Shares Enjoying Momentum Boost
Momentum is back in the technology sector.
A broad range of Internet, software and hardware stocks have rocketed in recent weeks from multiyear lows set in late March or early April. The rewards for investors who bought at the lows: gains of 100% or more.
But with the rally also has come warnings from some money managers that the stocks’ advance may be too good to last.
The sector’s bulls, however, insist that many tech shares simply became ridiculously cheap by early April. Investors, the bulls say, are wisely fishing around for companies that will survive the current tech spending slump and prosper in the next boom.
Analysts have grown bolder with their recommendations on many crushed tech names. On Tuesday, shares of Priceline.com surged $1.74 to $6.59, a 36% gain, after analyst Anthony Noto at Goldman Sachs upgraded the stock to “market outperformer” from “market performer” ahead of the company’s quarterly earnings report.
After trading ended, Priceline said its first-quarter loss, excluding one-time expenses, narrowed to $6.2 million, or 3 cents a share compared with a loss of $7.3 million, or 4 cents a share, a year earlier. Revenue was $269.7 million, down from $311.6 million a year earlier but up 18% from the fourth quarter.
The company also said it would be profitable in the current quarter.
Priceline shares rose further in after-hours trading, jumping to $7.43 a share.
An adage says the leading sector of a prior bull market doesn’t lead the next. So although tech stocks accounted for 23 of the 25 best-performing stocks in the blue-chip Standard & Poor’s 500 index in the last month, many money managers are suspicious.
“I don’t put a lot of faith in what this may mean for the next quarter or two,” said Dan Cook, technology portfolio manager at Malvern, Pa.-based StoneRidge Investment Partners, which oversees $960 million in assets. “We are not out of the bear market and though we will hold the low, we could sell off” from here.
Many managers said they expected that any initial rally in tech would be sharp, given the stunning losses of the last year.
“Tech just took a huge pounding and we have had a classic overshoot” situation, said Michelle Clayman, chief investment officer at New Amsterdam Partners, which oversees $1.1 billion in assets. “So this rebound now is not surprising.”
The gains have been dramatic for many tech issues, even if share prices are still far below their 1999 or 2000 peaks.
Priceline.com was at $2.53 a share April 3. At Tuesday’s after-hours price, the gain is 194% for someone who bought April 3.
But the rebound may hardly have been noticed by someone who bought at the peak of $162 in 1999.
Internet search vehicle Goto.com was at $5.84 on March 21. Since then, boosted partly by recommendations from such brokerages as Merrill Lynch and Lazard Freres, the stock has surged to $19.89 as of Tuesday, for a 241% gain.
But some leaders of the late-1990s tech rally, such as Cisco Systems, have risen much more cautiously. Cisco, at $17.80 a share as of Tuesday’s close, is up 30.5% from its low reached April 6. That’s a smaller rebound than what the Nasdaq composite index has enjoyed from its recent low.
Some analysts say the warning about avoiding a previous bull market’s leaders may well apply to giant tech companies such as Cisco, but not to scores of smaller, more nimble tech companies whose earnings growth potential remains substantial.
Still, some pros believe that stocks in general, and tech in particular, could retest their recent lows.
“We think there will be another retest of the low to come in the next three to four weeks, and only then may we see a sustained rally,” said Price Headley, president of BigTrends.com. a Lexington, Ky.-based financial research firm.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
‘Big Mo’ Returns to Tech
Many technology stocks have enjoyed stunning gains since bottoming in late March or early April. Some of the biggest winners:
*--*
Ticker Recent Tues. Pctg. Stock symbol low close gain GoTo.com GOTO $5.84 $19.89 +241% RF Micro Dev. RFMD 9.06 29.93 +230 Embarcadero EMBT 10.63 34.50 +224 Emulex EMLX 12.50 39.14 +213 TriQuint Semi. TQNT 10.38 31.24 +201 Interwoven IWOV 6.06 17.00 +181 Brocade Comm. BRCD 17.49 42.96 +146 Sapient SAPE 5.28 12.33 +134 PeopleSoft PSFT 19.00 39.36 +107 Siebel Systems SEBL 23.04 47.49 +106 Nasdaq compos. 1,638.80 2,168.24 +32 S&P; 500 1,103.25 1,266.44 +15
*--*
Sources: Bloomberg News, Times research
