Another Tech Stock Rally Wilts on Lowered Earnings Forecasts
Technology stock investors are discovering just how tough it can be for deeply depressed shares to mount a lasting rally.
Downbeat comments from brokerage Goldman Sachs about tech giants EMC Corp. and Sun Microsystems helped spark another pullback in the sector Tuesday. After trading ended, Sun added more gloom by warning that earnings this quarter won’t meet already-lowered estimates.
Though most tech shares remain well above their late-March or early-April lows--which for many issues were the lowest prices in at least two years--the rallies of the last two months have quickly been followed by fresh selling waves, particularly in the case of some of the biggest tech names.
Investors fear that a significant turnaround in sales and earnings for many tech firms won’t happen before the end of the year at the earliest. That was Goldman analyst Laura Conigliaro’s message Tuesday in cutting earnings estimates for EMC and Sun.
“To the extent that we were looking for things to be turning, they really are not,” Conigliaro told Bloomberg News. “Maybe the best you can say is that they’re still bumping along the bottom.”
Though many other U.S. companies also may have to wait until year’s end for a turnaround in their business, tech giants face another problem: Their stocks suffer from “overhead supply”--meaning many investors bought shares at higher prices in the last year and are tempted to sell as the stocks get closer to the break-even point.
Sun, for example, hit a two-year low of $13.04 on April 9, then rallied as high as $22.96 by May 21. That was its highest price since February.
But the stock (ticker symbol: SUNW) has fallen every day since May 21 and slid $1.80 to $18.67 in regular Nasdaq trading Tuesday. The price fell to $17.98 in after-hours trading--the lowest since May 15.
Internet portal Yahoo (YHOO) bottomed at $11.38 on April 3, then rose as high as $22.92 by May 2. The shares sank $2.13 to $18.79 Tuesday on Nasdaq.
Some tech shares are getting much closer to their spring lows. Software giant Oracle (ORCL) bottomed at $13.25 on April 3, then shot to $20.32 by April 19. On Tuesday the stock lost 90 cents to $15.61 on Nasdaq. That left it 18% above its April 3 low.
By contrast, the Nasdaq composite index, at 2,175.54 Tuesday, is 33% above its April 4 low.
Though Conigliaro cut earnings estimates for Sun and EMC, she is keeping Goldman’s highest rating on the stocks. Though she doesn’t point to good news on the immediate horizon, her ratings indicate long-term bullishness--for investors who can stand to wait for business to rebound.
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Trying to Hold on to Their Gains
Shares of many tech giants have slumped again in recent sessions as some investors have rushed to sell in the wake of the stocks’ spring rally.
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Ticker Spring Rally Tues. close Stock symbol low high and change Cisco Systems CSCO $13.63 $23.48 $20.46, -$1.59 Conexant CNXT 7.07 12.45 9.01, -0.82 Corning GLW 18.50 26.70 20.67, -0.88 Intel INTC 22.63 32.49 27.85, -1.25 JDS Uniphase JDSU 13.73 28.53 19.17, -2.09 Motorola MOT 11.50 16.60 15.00, -0.71 Oracle ORCL 13.25 20.32 15.61, -0.90 Sun Microsys. SUNW 13.04 22.96 18.67, -1.80 Tibco Software TIBX 6.75 15.95 13.69, -1.51 Yahoo YHOO 11.38 22.92 18.79, -2.13
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Source: Bloomberg News
