Investors Reevaluate Tech Leaders, But Apple’s Stock Sees Little Downside

Uh oh, now they are executing the generals, as the old Wall Street saying goes. The Nasdaq experienced a brutal sell-off in many of its best performing, if overvalued, names. Pushed down by the sea of red, Appleis stock is so low there is nowhere for it to go!

One by one the high valuations in the various technology sectors are coming unraveled. First, the Internet bubble burst in the spring, then the PC stocks wilted through the summer, then semiconductors were hammered after labor day and now the optical and networking stocks are finally taking their lumps. Is anyone left standing? (Hint: The biotech stocks, although crushed in the spring, still retain hefty new gains made since then.)

Todayis action reminds us that the type of climatic, near-panic selling traders believe is necessary to put a decisive bottom in the tech stockis bear market has never really happened. Instead a trend of lower lows and lower highs has become well established leading many observers to speculate the best buying opportunities may yet to be had.

Nortel, the Canadian optical networking giant, reported earnings grew 83% in the third-quarter, but still sports a net loss as expected. Nortel clocked its sales growth for the quarter at 42%. Itis hard to imagine a rosier picture, so why did Nortelis excellent earnings spark a huge sell-off in related stocks such as JDS Uniphase (JDSU), PMC-Sierra (PMCS), SDL Inc. (SDLI), Applied Micro (AMCC) and Vitesse Semiconductor (VTSS) among many others?

Ironically, because it is hard to imagine a rosier picture! The Wall Street Journal explains:

"While strong, Nortelis earnings didnit blow past analystsi estimates as much as in previous quarters, and revenue was at the low end of expectations. Analysts surveyed by FirstCall/Thomson Financial had expected Nortel to report third-quarter operating earnings of 17 cents a share. Analysts had been expecting even higher optical-sales growth, but Nortelis pace in recent quarters means "itis hard to imagine the news getting any better," said Jim Kedersha, an analyst with Adams, Harkness & Hill in Boston."

You think thatis ironic? The really big negative story today is the demise of Ma Bell. Yes, AT&T is disintegrating into four new companies in a last ditch effort to save the companyis stock by disemboweling itself.

According to CBSMarketWatch:

"By 2002, AT&T plans to separate its business, consumer, wireless and cable broadband unit, which includes the ExciteAtHome stake, into independent entities. The parent will retain the business-services unit, the AT&T network and the New York Stock Exchange symbol, T. The company brand will be licensed to all four entities."

Appleis stock drifted lower by 3/8, or -1.99%, to close at 18 1/2 on volume of 11.8 million shares.

ZDNet News posted a must-read interview with Thomas Lot, Appleis general manager for European operations. Among many interesting statements, Mr. Lot said that one of Appleis goals is to reach double-digit market share.

"Of every 100 iMacs sold, 46 are bought by people who did not have a computer previously," claimed Mr. Lot, " if 23 percent of French homes have a computer, that means that there are 77 that donit. We have room to grow. We regard ourselves as a start-up!"

The Nasdaq sold-off 190 points (-5.56%) to close at 3229 on volume of 2.6 billion shares.

The AMEX Networking Index ($NWX) lost 11.7% today. The telecom sector sank 9.4%. Computer hardware was off 5.6% and Internet stocks as a group lost 6.2%. The Philadelphia Semiconductor Index ($SOX) is now down more than 50% from its year-to-date high.

The Dow shed 66 points (-0.64%) to close at 10326 on volume of 1.2 billion shares. Defensive plays such as drugs, soft drinks and insurance stocks were strong.

The S&P 500 lost 33.24 points (-2.38%) to close at 1364.89.

In Apple related businesses: Akamai lost 2 7/16 to 50 9/16. Adobe gained 1/16 to 67 5/8. Earthlink dropped 9/16 to 6 17/32. IBM lost 4 3/16 to 87 1/4, a new 52-week low.

Appleis competitors: Dell lost 15/16 to 25 7/8. Shares of Microsoft slipped by 1/4 to 61 1/4. Gateway was lower by 1.72 to 48.26.

Compaq gained 1.10 to 28.10 after the Houston-based company reported 3rd quarter profits rose on strong sales across all product lines, but the company warned that the weak euro could lower 4th quarter profits.

Hewlett Packard got hit for a second day of pain, down 5 13/16 to 86 11/16 as rumors that HP will miss earnings continue to echo on the Internet. HP doesnit report till mid-November.

In economic news: Existing home sales fell 2.7% in September despite lower mortgage rates. In August preowned home sales were revised upward for a 9.5% gain.

The Wall Street Journal reported, "Despite the monthly decline in sales, economists say conditions in the housing sector remain favorable. Mortgage rates on a conventional 30-year mortgage fell to an average of 8.07% in September, down from 8.16% in August, according to HSH Associates."

Tomorrow is big day for economic data as the industrial PPI and the 3rd quarter employment cost index make news and maybe waves in the stock market. On Friday gross domestic product numbers could shed more light on the economyis real direction.

For full quotes on all the companies mentioned in this article, we have assembled this set of quotes at Yahoo! for your reference. For other stories regarding Appleis stock activity, visit our recently updated Apple Stock Watch Special Report.

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