Performance, Outlook for Key Stock Sectors
Technology stocks--in steep decline before last week’s terrorist attacks--were among the hardest hit in Monday’s market sell-off. But market analysts saw the tragic events as merely reinforcing well-established pessimism.
The attacks “maybe have been the straw that broke the camel’s back,” said Mark Hulbert, editor of the Hulbert Financial Digest, a compendium of 160 financial newsletters. “But the true story is, what else was loaded on the camel?”
Evaporating profits and weak demand in key markets already were sinking most technology firms, analysts agreed.
Among Monday’s biggest losers were computer makers Compaq Computer Corp. and Hewlett-Packard Co., whose recently announced merger plans had met with market disapproval.
Compaq shares fell $1.60, or more than 15%, to a 52-week low of $8.75, in Nasdaq trading. HP dropped $1.87, about 10%, to $16.02 on the New York Stock Exchange, its lowest level since 1995.
Other PC firms, such as Dell Computer Corp. and Gateway Inc., also were hit hard, reflecting the industry consensus that consumer demand will not revive any time soon.
Consumers account for only 5% of technology spending but as much as 65% of total revenue for the PC makers, said Richard Gardner, an analyst at Salomon Smith Barney.
Slack consumer confidence will hit PC makers and their suppliers--software and microprocessor makers among them--hard in coming months, analysts said.
“We can expect a slew of pre-announcements from companies about earnings misses,” said Ashok Kumar, a tech analyst with U.S. Bancorp Piper Jaffray. “We don’t see any sign of recovery until mid next year at the earliest.”
Consumer-oriented Internet firms, such as Amazon.com Inc. and AOL Time Warner Inc., which also has sizable entertainment operations, were among the day’s biggest casualties.
Amazon shares fell $1.14, or about 13%, to $7.49 on Nasdaq; AOL Time Warner dropped $4.41 to $30 on the NYSE, a 52-week low.
Kumar noted the financial services sector--hard hit by the destruction of New York’s World Trade Center--accounts for nearly a quarter of all information technology spending. He expects such spending to remain depressed until 2003.
Analysts emphasized that the tech sector remains mired in an 18-month correction.
“The terrorist action, awful as it is, doesn’t change the market,” Hulbert said. After other national catastrophes, the market generally has continued established trends, he said.
Compaq, network equipment leader Cisco Systems Inc. and microprocessor titan Intel Corp. announced stock buyback plans in the last few days. All saw their shares drop sharply Monday.
Nearly all chip makers, including many that feed the consumer electronics, PC and telecommunications sectors, also plunged.
The software sector, including Microsoft Corp.--itself subject to the trends that influence the fortunes of PC makers--also lost ground. Microsoft shares fell $4.67 to $52.91 in Nasdaq trading.
In a research note published Monday, U.S. Bancorp Piper Jaffray predicted a software sector recovery in late 2002 or early 2003.
Finland-based Nokia Corp.--the leading maker of cellular phones--was a rare gainer among technology stocks. Nokia shares rose $1.69, more than 12%, to $15.44 on the NYSE. Some analysts predicted cell phones will be viewed as an essential security device in a society unnerved by the terrorist attacks.
Although telecommunications stocks were generally weaker, many analysts expect a surge in spending on data and phone service redundancy. Teleconference leaders AT&T; Corp. and WorldCom Inc., as well as undersea-network operator Global Crossing Ltd., could see more interest in transoceanic connections, said Salomon Smith Barney analyst Jack Grubman.
Smaller tech sub-sectors linked to anxieties about safety--security and videoconferencing equipment that can reduce companies’ dependence on air travel--also gained.
Robert Olstein, manager of the $800-million Olstein Financial Alert Fund, sees several such areas as undervalued.
“We think there are tremendous opportunities now,” he said, noting networking, computer storage and defense technology as key areas.
But the prevailing attitude seems to be uncertainty.
“Panic selling usually ends up being wrong in hindsight,” Kumar said. “But there are no rules of thumb that can be applied in this kind of environment.”
