Cautious approach to accumulating technology stocks at the current time (page 1 of 3)

US Stocks

MOT will be reporting this Wednesday (Jul-11-01), the consensus is for a loss $0.122 per share. Investors are hoping to hear from management that business will improve in 2H. Nokia's latest warning raised fears that MOT, which has struggled to bolster its mobile telephone operations with cost cutting and new products, could disappoint in the 2Q lower expectations.

MOT can be looked upon as bell weather for its broad array of products - it touches the cable industry, semi-conductors, handsets, mobile infrastructure, and the automobile market.

In a tough operating environment, a low to negative working capital would spell trouble for any company. Therefore, the management of working capital is vital, so is the efficiency in the conversion of cash flow from operations. The following is the top ranked company in its respective sector based on the above criteria:

Aerospace-Boeing
Automobile-Ford Motor
Chemical-Eastman Chemical
Coal-Consolidated Energy
Conglomerates-Bershire Hathaway
Construction-Lafarge Corp
Containers-Packaging Corp of America
Cosmetics-Gillette
Electric Utilities-Calpine Corp
Entertainment-Carnival Corp
Telco-QwestCommunication
Beverage-Coca Cola
Food retailers-Casey's General Stores
Paper-Rayonier Inc
Gas Utilities-Questar Corp
Healthcare-Apria Healthcare
Furnishing-Herman Miller Inc
Household-Church & Dwight
Industrial-Ingersoll Rand
Equipment-Maxim Integrated
Transport-Burlington Northern Santa Fe
Media-New York Times
Medical products-Abbott Labs
Metals-Anglo Gold
Natural gas-Burlington Resources
Biotech-Amgen Inc
Pharma-Schering Plough
Retail-Block Buster Inc
Tech (hardware)-Linear Technology
Apparel-Timberland Co
Tobacco-UST
Transport Equip-PACCAR Inc
Travel-Southwest Airline
Wireless-Paging Network Inc



US Technology

On a week-on-week basis, the NASDAQ Composite Index fell 7.2% to close bearishly at 2004. Continued earnings warning, plus the magnitude of the shortfalls, re-ignited fears that technology companies may take a longer time to post an earnings recovery than previously estimated (at 2H01). Sentiment is once again weak as investors give up on "guessing" for an earnings rebound and will choose instead to remain cautious over the near-term. Looking ahead, we expect the negative price volatility to be high as we enter into the second quarter reporting season. Furthermore, we expect the high price volatility to be compounded by last minute negative news flows from technology companies warning of lower earnings just before their scheduled reporting (as opposed to a meaningful preannouncement a week earlier).

We recommend investors to take a cautious approach to accumulating technology stocks at the current time. Though there are no safe havens within the technology sector (in our present environment), we expect software issues to fare slightly better over the hardware sector in the short-term (3-months). Nevertheless, while we do not advocate chasing rising equity prices in a bull market regime, we do not suggest chasing after falling prices in a bear market environment either (rather, wait for price stability to set in first before considering any further buying strategy).

I2 Technologies (ITWO US, $15.76, CSFB rating: Buy, CSPB MG V Buy recommendation) announced preliminary June-2Q01 results last week.