Technology stocks

**jIM_Ohio** · 10-08-2008, 11:46 AM

I am buying tech in wife's Roth and have been since July.

I think tech will lead way out of the recession if we are in fact in one.

**Broken Arrow** · 10-08-2008, 12:04 PM

You know, I like technology. It's just that, in the current environment, with the economic slowdowns, both corporate and consumer spending have been decreasing in this sector.

If you think about it, there's a reason why the prices have been going so low.

Long term? No problem. Now is a great time to buy excellent technology, such as Cisco. Trading? Oh no. There are a lot of things, not just technology, that I think is at a great price right now, but they aren't going up anytime soon due to our economy. Real estate for example.

About the only notable exception to the tech rule has been Apple, but even they have been going down recently. I think they just got a downgrade due to the slowing consumer spending. But, I do think the Apple story is a little bit more involved than just that.

**jIM_Ohio** · 10-08-2008, 12:31 PM

the stock market will be a trailing indicator of a recession and the leading indicator when things are good. Meaning by the time things turn around, the market will generally have already moved upward and might have missed your point to get in on the technology which is real at present time.

Cisco, Oracle and Microsoft are all big, known, technology names.
The technology I am looking for are the smaller companies. Not sure what the technology will be (alternative energy, software, other), but there are constant innovations being made and the innovations will do a few things
1) improve infrastructure. Cisco falls into this- if a company needs to improve it's network, Cisco will have products used.
2) change the way business is done. The internet did this pre 2000. There is probably another paradigm shift coming, just not sure what. Cell phones keep getting enhanced and I am probably the only person in the country which still does not have an ipod or mp3 player.
3) Make life easier. Again not sure what this is, but I thought CDs were as good as music would get, then mp3's came out. My uncle thought 8 tracks were as good as it would get and then CDs came out. Things change, people will spend money on the changes.

One issue to point out- when companies have to cut costs, one way they look to do it is through infrastructure- meaning if they need a new plant or building to cut costs, they can borrow money cheaply, and create what they need to. Technology is at the root of infrastructure- faster servers, faster networks, software which makes the enterprise work more efficiently. These types of technology will make money in a downturn.

**tripods68** · 10-08-2008, 12:36 PM

Nice job Jim!

What troubles me about this whole down market.

Cisco met 4th quarter the consensus estimate, yet shares are down. So that tells me investors are throwing away good and sound fundamentals similar to what happened in dotcom bust era. Oracle suprisingly beat estimate also and they are in the same boat.

BA - I like apple at $89 per share and growth expectation. I hope Steve Jobs health issue is not true. But their just too expensive for me at this point.

**Broken Arrow** · 10-08-2008, 12:51 PM

Jim, if you look at my original post, you'll see that I differentiate between investing and trading. For me, trading moves within a time frame of anywhere from 15 minutes to 15 days. Within that time frame, technology isn't what I would look into.

That and I don't think it's safe to assume that the market will be a trailing indicator in a down market. Maybe I'm blind as a bat, but pragmatically, when we buy in, that's what we buy in, at market price. That and all this kind of gets into the idea of market efficiency....

Tripod, I agree. Job's health is and should be an issue. The entire Apple story is a fairly unique one I think, where innovation and cult of personality plays a large part. Plus, I have yet to see a real upside since the introduction of the first iPhone. And that's why I too haven't bought in either. However, what I am stating about Apple is a sentiment that you can probably verify anywhere, from social stock picking sites to TV talking heads like Jim Cramer.

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Since I'm here, I do want to point out is that when we valuate a company, let's be careful about not overusing the term "price". I use it too, but only to describe in casual terms of a company's valuation. The consistent evaluator for such things are P/E. We can always debate about the pros and cons of P/E, but in the end, that's what most people use. Kind of like the Dow.

Also, I would please remember that there really is no such thing as "too expense". I know we there's the mantra "buy low, sell high", but the truth is, it's only a generalization. In practice, it is entirely possible to buy low and end up selling lower if we are unfortunate. One can also buy high and end up selling even higher. So, we have to be careful about the way we catch that proverbial falling knife, especially in this market climate.

I hope it doesn't seem like I'm giving you or anyone a hard time. Sometimes, I just have a few minutes to kill, so I usually end up running my mouth.

**jIM_Ohio** · 10-08-2008, 01:07 PM

Originally posted by Broken Arrow View Post

Jim, if you look at my original post, you'll see that I differentiate between investing and trading. For me, trading moves within a time frame of anywhere from 15 minutes to 15 days. Within that time frame, technology isn't what I would look into.

That and I don't think it's safe to assume that the market will be a trailing indicator in a down market. Maybe I'm blind as a bat, but pragmatically, when we buy in, that's what we buy in, at market price. That and all this kind of gets into the idea of market efficiency....

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I hope it doesn't seem like I'm giving you or anyone a hard time. Sometimes, I just have a few minutes to kill, so I usually end up running my mouth.

Generally speaking by the time the market goes down, things have already been bad for a while and it takes 3-6 months for the earnings reports and jobs reports to make it's way into the market.

Meaning jobs could be cut in 2nd quarter (March-June) and those numbers might be just now making it to press in September. Because those reports adjust GDP back for previous quarter, people don't see the numbers as to how bad things are until they are even worse.

That is why "whole market" goes down. When 499 of the 500 stocks in S&P 500 go down, that is bad news, not bad earnings, influencing the market.

The prices go down because their needs to be a buyer (for every seller) and the seller must take the price the buyer asks for if things are paniced.

That is what is happening now. Most of this has little to do with earnings of a given company. Whole market is going down, so people holding anything will sell it to have cash, and they need a buyer to take it (at any price).

I don't trade, I don't look for a 15 day time horizon. So other than maybe shorting the market, I could not imagine many other things being profitable in next 15 days.

But in next 15 months and 15 years, I like tech and I like healthcare. Probably financials too.

The markets will begin to recognize the companies with earnings soon. Cisco, Oracle and Microsoft are my favorates (in tech) with Proctor and Gamble also in my favs as well (even if the rolls of toilet paper have fewer squares).

I am keeping close eye on a few things for years end (when I can see my annual return for 2008 and compare it to S&P 500). I am seeing a similar trend to 2000-2002, but I need to see if things are going to drop more or if things are going to be about the same (highly volatile).

stay tuned.

**scp** · 10-08-2008, 01:32 PM

Umm, again newbie here- but are stocks always bought in lots of 100?

**tripods68** · 10-08-2008, 02:49 PM

Here's my take on this.

I agree job report act as a lagging indicator in the general economy. But not true for any public company. I want to be clear this is mention.

When the company announce a job "layoff" today, the market acts on that news the same day of the announcement and reflect that news in the stock price. Similarly, when company's CEO or CFO announce negative earnings projections in the 1st quarter of 2009 due to tough economic conditions, the market reflects that information too in the stock price. Along the same line, when a company spend a capital improvements worth $100 Million on new product developments and infastractures. That news is reflected in the stock price right a way because it affects EBIT and future earnings.

Bottom line: news travel fast and provides good transparency for investors.

**jIM_Ohio** · 10-08-2008, 04:37 PM

Originally posted by tripods68 View Post

Here's my take on this.

I agree job report act as a lagging indicator in the general economy. But not true for any public company. I want to be clear this is mention.

When the company announce a job "layoff" today, the market acts on that news the same day of the announcement and reflect that news in the stock price. Similarly, when company's CEO or CFO announce negative earnings projections in the 1st quarter of 2009 due to tough economic conditions, the market reflects that information too in the stock price. Along the same line, when a company spend a capital improvements worth $100 Million on new product developments and infastractures. That news is reflected in the stock price right a way because it affects EBIT and future earnings.

Bottom line: news travel fast and provides good transparency for investors.

Agree when a company announces layoffs that things react quickly- but consider stocks often go UP on this news because it cuts costs and helps the bottom line- meaning the stocks movement based on the news might not be downward, upward or rational.

Disagree- earnings are still "trailing" indicators based on performance for previous 3 months- so it might take 3 months of bad sales before company announces publicly that things are bad. It might issue an earnings warning in meantime, but generally speaking earnings announcements are not leading indicators, but trailing.

Obviously there are projected earnings which are supposed to look forward, but in general I understand the following to be true:

Recessions are not identified until market is 30% from it's peak (correct?). So you do not know if it is a recession after the first 10% drop. The recession might have already started, but you don't know until the market is 30% from the top 8 months later.

A bull market will start when market goes up 5%, 30% whatever. We know the market does not shoot up 30% in a day. it goes up 4%, down 1%, up 3% etc... then over time we see it up 15% from that low point. The bull cannot be "called" until it is up 30% from low, but it's usually clear market is headed up when it is not at it's most recent low.

Meaning
In October of last year S&P 500 was at around 1565
In March 1293
In May 1425
In July 1245
In August 1282

you could not tell we were in a recession at any of those points
Add in one more point
October 2008 the S&P is at 996

1565-996/1565=36%

So the drop has been 36% and 30% drops are recessions- but who was calling recession at this time last year (when funds like VFINX were having 5 straight years of annual positive gains (5% for 2007).

The Bull will be seen first when the market gives positive returns, even though employment might not pick up for a few months after things get better within the market.

**Broken Arrow** · 10-08-2008, 04:46 PM

Jim, I don't disagree with the explanation, but again, as I specified in my original post, I am making a differentiation between trading and investing.

Investing in technology right now? Yes.

Trading in technology right now? No.

The reason why I am bringing this up is because, based on what tripod has written in the past, it is possible that he may be a trader, not just an investor. I'm not sure because it was never explicitly stated, but based on what I've seen before, it's a possibility. Hence me giving both takes on it.

I don't want to veer too much off of this, because this conversation can then go off into all kinds of directions.

scp, the short answer is No. Slightly longer answer is that back in the day, when stock transactions are a bit more involving with pens and paper, they used to make you buy only round lots (that's 100 shares) of any particular stock. Thanks to technology today, much of that tedious work is removed and we can buy stocks down to single shares. However, some still prefer round lots just because they're nice, neat numbers to work with.

**jIM_Ohio** · 10-08-2008, 05:20 PM

Here's an article I found which was interesting.

For Long-Term Investors, Now Is Time to Buy (Goldman Sachs) at SmartMoney.com

**tripods68** · 10-08-2008, 06:27 PM

Originally posted by jIM_Ohio View Post

Disagree- earnings are still "trailing" indicators based on performance for previous 3 months- so it might take 3 months of bad sales before company announces publicly that things are bad. It might issue an earnings warning in meantime, but generally speaking earnings announcements are not leading indicators, but trailing.

I think we all agree in general.

This is the reason why I brought this topic up. Both CISCO and ORACLE met expectation, yet their stocks are way down due the credit crunch. Is it irrational? Yes. Panic has set in the market which supersedes rational thinking. My point being if you are a trader this is the best price for these stock to enter.

**jIM_Ohio** · 10-08-2008, 06:45 PM

I don't buy into the whole efficient market thinking.

I am pretty sure my core fund (PRFDX) picked these companies up at the recent drops. It did in 2000 and it probably did again in 2008. I won't know until I see the year end prospectus (around February).

Markets like this are the reason I think managed funds can fare quite well. I am looking forward to analyzing my year end data.

Technology stocks