I do not view tech companies to be worthy long term holds, meaning for more than five years. Frequently, their valuations make little sense considering their cyclicality as well as the negative impact on profit margins and growth from competitors eroding market share and underpricing with functionally equivalent products. Sometimes, I received catcalls, hisses and thunderous booing by comparing them to homebuilders or steel companies though more likely to generate cash for the balance sheet. To me, the only time to buy them is in their darkest hour, and even then I will stick mostly to those whose size, patents, cash and market share provide a cushion of protection and potential for both survival and renewed growth when the darkness lifts. So, now, in my usual glacier speed, I am adding tech names to my portfolio, hoping to hold them for up to five years, or until the bulls see no danger in the future, only boundless opportunities, with the P/E multiple expanding from the low teens to the 20s and beyond and the expansive multiple is applied to rapidly increasing earnings as if the momentum will continue to the end of days. Then, I will sell without a moment's hesitation. I have yet to fall in love with a stock.
Sometimes I will nibble on smaller tech companies and I mentioned some that I bought and sold before 2008 in a prior post, including AMSWA, RADS, NTCT, KEYN and many others crushed during the current downturn. While I may have not sold at the top, I sold for a profit and my last sale was at a much higher price than the current trades except for NTCT which has rallied some the past few days. My inclination is to stick with the large cap names in my buying activity now due to the severity of this downturn. Some of the smaller names may be worth a nibble only when the business remains viable and the pricing is close to net cash on the balance sheet. I also see no need to hurry either. I would hope, before I am done, to own 200 shares in EMC, Oracle, Microsoft, Intel, & CISCO, 100 shares in LLTC, SMH, and ADBE, with 50 shares in AAPL, HWP & RIMM.
I suppose we are to believe Ken Lewis now when he says that Merrill's portfolio took an abrupt downward spiral in mid December, when most markets were recovering, coming to light for the first time after the shareholders approved the merger on 12/5. The WSJ points out the deterioration in those types of securities began in mid November. And, if Lewis is to be believed, none of those problems that allegedly first came to light after the shareholder vote were overlooked during the due diligence that Ken and his team did before agreeing to the deal. He is claiming, adamantly, to have done a thorough job of due diligence. Never mind that 25% of the protected asset pool comes from Bank of America. WSJ.com If anyone wants to believe Ken now, please go ahead. I for one would not believe anything said by the senior management of BAC. When you lose credibility, you are not going to get it back. Credibility once lost has found the same home as that fifty billion given to Bernie to manage. Without a doubt, Lewis has destroyed more value than he has created and could ever hope to create. But, it is up to the institutional investors to decide whether he stays or goes. For me, any institutional shareholder voting for the Board at BAC needs to have a conservator appointed to manage their assets -for any further vote sanctioning what has happened would be tantamount to an admission of incompetency, in the mental sense of the word, beyond any reasonable doubt. The same would be true for the Citigroup Board of Directors. But to expect institutional investors and mutual funds to do much of anything would be absurdly optimistic.
Also, compare what Ken was telling shareholders after the deal closed on January 1st with the ongoing discussion with Ben and Hank. WSJ.com
And, seeDeal Journal - WSJ.com
I thought that I would amend this post to add a reference to a research note from J P Morgan on Intel, summarized in Barron's, which contained a $10 price target.Barrons.com I know that I will be a buyer below 10. I made a note of their prediction on 2009 earnings and revenues for future reference in these posts.
My picture for the weekend is Ollie.