Some Breaks In The Clouds
Thanks in part to an aggressive and
activist Fed that launched its second surprise inter-meeting rate cut of the
year, the Nasdaq appears set to book one of its single best monthly performances
ever. From its dark and dreary intraday low of 1619.58 on April 4, the Nasdaq
has managed to bounce back more than 27% to give tech bulls reason enough to
finally crawl out of their bomb shelters. While tech earnings warnings and
woeful outlooks continue to pummel select techs, there actually have been more
than a few positives that have peaked through the dark clouds that have hung
over tech since March of 2000.
A Bullish Fed?
Obviously, the biggest positive for technology stocks is the fact that the Fed
is clearly determined to prime the economy as quickly as possible. Since
trillions of tech dollars were vaporized over the past year, there is little
worry for the Fed that the “wealth effect” will resurface, so you
could make the case that what we are seeing now is a bullish Fed. Their recent
action sort of admitted interest rate overkill without having to publicly say
it. The Fed’s timing for its April 18 rate cut was perfect because it took place
after stocks had begun to rally back from their lows, and therefore, the Fed
dodged the accusation that they focus on stock prices.
Regardless of the Fed’s rationale, their aggressive action shows that they
are deeply concerned about preventing economic meltdown and will continue to
flood the economy with liquidity. The money flooding into the economy right now
could theoretically have an impact much like the pre-Y2K money-supply surge, but
this time around it would come with no Internet bubble in sight and against a
backdrop of increasing unemployment and falling corporate profits.
History shows that this sort of Fed policy ultimately helps send stocks
higher. Don’t fight the Fed applies to the upside as well, and Greenspan does
not want to go down in history as the mean-spirited Chairman that wiped out the
nation’s 401(k)s with a 10-year bear market. Cisco at 15 clearly calls for a
return of the punch bowl, and at least for now, the Fed looks like they will
comply.
In addition to the positive developments at the Fed, there are quite a few
tech companies that have held up relatively well during the relentless bear and
have continued to churn out respectable earnings. Not only do these companies
sport solid business models, but they are candidates that could become the new
leadership that may eventually take tech higher. Here is a look at a few that
have topped earnings estimates recently. Yes, many of these earnings estimates
had been lowered, but at least beating those estimates is a good start.
Novellus Beats Estimates
The first is semiconductor maker Novellus
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PowerRating), which is also a
component of the SOX
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PowerRating). Novellus supplies high-productivity
deposition and surface preparation systems used in the fabrication of integrated
circuits. The company posted earnings of 62 cents per share Monday which topped
Street estimates by a penny. Sales for the first quarter were $458 million and
that generated $91.2 million in profits. Novellus sports a low P/E ratio of 23 and has a market capitalization of 7.2
billion.Â
As the chart below shows, Novellus had retaken
its 50- and 200-day moving averages before surging higher on April 18 on big
volume, but then pulled back before its earnings announcement on Monday. The
fact Novellus consolidated and held above its 200-day was encouraging this week.
The stock closed Friday up 5.69 to 51.91 and might be worth keeping on the radar
since the semiconductor group is usually among the first sectors to rise when
tech stocks turn to the upside.
Verisign Vaults
Verisign
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PowerRating) is another tech that topped earnings estimates this
week, booking 23-cent-per-share earnings on Thursday that soundly topped analyst estimates
of 13 cents per share. The Mountain View, Calif-based company offers Internet
security products and is the parent company of web-registry Network Solutions.
Revenues for the first quarter soared to $213 million which was a dramatic
increase from the year-ago quarter’s $34 million.Â
While Verisign is significantly off its Sept.
2000 high of 209.62, it has held up well compared to most Net or tech-related
plays. The stock recaptured its 50-day out of a six-week base before pulling
back slightly this week.Â
Verisign finished the day up 5.69
to 51.91 on more than double average volume. While it has quite a lot of
overhead resistance to plow through back to the upside, the fact that its
revenues and profits have remained strong through the year-long tech collapse
are two positives that are worth noting.
Microsoft Also
Beats
Also topping estimates was Microsoft
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PowerRating), which announced last Friday that it earned 44 cents per share,
topping Street estimates by a penny. Microsoft broke above its 200-day average
on heavy volume the day the Fed cut rates and has been consolidating since then.
The fact Microsoft cleared its
10-week base and then held at those elevated levels is constructive. I will be
watching to see if Microsoft can take out last week’s highs on increasing
volume. The stock pulled back 2.01 on Friday to close at 67.12 on
heavier-than-average volume. A pullback was in order since it had jumped more
than 33% since April 4 level.
So as these three examples show,
there are some positive developments on the fundamental front among the techs.
These three companies have shown constructive price and volume action since the
recent Nasdaq low, and now that the Fed seems so eager to give the economy a
boost, it makes sense to keep your eyes on the tech performers that show strong
fundamentals, reasonable prices, and solid technical setups.
Have a great weekend,
Â