Tech Stocks Near Seven-Year Lows, But Some Say ‘Buyer Beware’

Is it time to buy tech stocks? You might think so if you just read the headline above this week’s

Photo courtesy of berfrois.com

Photo courtesy of berfrois.com

Bloomberg News article heralding that tech stocks are “the cheapest in seven years” (http://www.bloomberg.com/news/print/2013-04-28/tech-stocks-cheapest-in-seven-years-as-profit-estimates-decline.html).

But tech stocks, which Bloomberg reports make up “the second-best industry of the past decade,” could be headed for more losses since many analysts have reduced profit estimates for the second quarter of 2013. Government spending cuts and reduced spending by consumers have prompted analysts to predict that earnings at computer companies will fall 5.5 percent in the second quarter, according to the Bloomberg story.

If you are a bull, the low cost of technology stocks may just be too hard to pass up. If you’re a bear, the spending cuts plus the weakening economies in Europe and China make it the wrong time to start buying technology stocks.

Two large cap tech stocks–Apple and IBM–are examples of the low prices in the technology sector. Apple closed out the week of April 22-26 at $417.21, “41 percent lower than the peak reached in September,” according to the Bloomberg story. Apple jumped up a bit from there, and at mid-day May 2 was trading at $447.83, up $8.54. IBM shares have been tumbling as well as the company missed forecasts for the first time since 2005, Bloomberg reported.

So “buyer beware” may be the takeaway from this report for tech stocks in May. Here are five small cap tech stocks chosen randomly so do your homework before investing.

Fremont, CA-based Procera Networks (Nasdaq: PKT, http://www.proceranetworks.com/) works with mobile and broadband network operators providing intelligent policy enforcement solutions for managing private networks. PKT’s products are sold under the PacketLogic brand name to more than 600 customers in North America, Europe and Asia. PKT’s 52-week trading range is $10.12-$25.99. At mid-day May 2 it was trading at $11.22, up 77 cents, with a market cap of $229 million.

Petaluma, CA-based Calix Inc (NYSE: CALX, http://www.calix.com/) provides broadband communications access systems and software for fiber- and copper-based network architectures that enable communications service providers to connect to residential and business subscribers. CALX has a Unified Access Infrastructure portfolio made up of carrier-class hardware and software products. In February 2011 Calix acquired Occam Networks and in November 2012 acquired Ericsson’s fiber access assets. CALX’s 52-week trading range is $4.25-$9.48. At mid-day May 2 it was trading at $8.64, up 43 cents with a market cap of $422.5 milllion.

Naperville, IL-based Tellabs Inc. (Nasdaq: TLAB, http://www.tellabs.com/) designs and markets equipment and services to communications services providers worldwide, enabling them to deliver wireless and wireline voice, data and video services to business and residential customers. Its customer base includes distributors, OEMs, system integrators and government agencies. Its 52-week trading range is $1.90-$3.89. at mid-day May 2, TLAB was trading at $2.04, up 3 cents, with a market cap of $746 million.

Oakland, CA-based Zhone Technologies (Nasdaq: ZHNE, http://www.zhone.com/) designs and manufactures communications networks equipment for telecommunications, wireless and cable operators worldwide. Its products enable network service providers to migrate from traditional circuit-based networks to packet-based networks and from copper-based access lines to fiber-based access lines without abandoning their existing infrastructures. Zhone makes the MXK Multi-service Terabit Access Concentrator or MXK. It’s 52-week trading range is $0.40-$1.24. At mid-day May 2, ZHNE was trading at $0.98, up 4 cents, with a market cap of $30.5 million.

San Jose, CA-based NetGear Inc (Nasdaq: NTGR, http://www.netgear.com/) is a global networking company that operates in three business units: retail, commercial and service provider. Products include Ethernet switches, wireless controllers, internet security appliances, unified storage products, routers, IP telephony products and many more. Its 52-week trading range is $26.82-$40.97. At mid-day May 2 NTGR was trading at $29.31, up 42 cents with a market cap of $1.1 billion.

Recession? Hmm. Is the Talk Shifting to Recovery?

The most eye-catching headline I came across this weekend was titled “Is the Recession Over?” Authored by Paul LaMonica, it was on money.cnn (http://money.cnn.com/2009/06/19/markets/thebuzz/index.htm?postversion=2009062008).  Mr LaMonica consults various credentialed people and presents a fair case for both yes and no answers, and then observes with his experts that for most people the question is not whether the recession has ended, but when the pain will end.

Of course for us at SmallCapWorld, we are pretty interested in the stock market, especially the smallcap stock market, which has had its own pain cycle over the last 10 months.  We tend to suspect that the market can be an early indicator of recovery, especially when indicators are broad, and reach most of the major segments.

At the same time, in a more optimistic universe, Motley Fool’s Adam Wiederman was looking for “The Best Stocks for the Next 4 Years,” the sort of headline (and article) that presumes that the sun’ll come out tomorrow.  He even quotes Sir John Templeton about investing at “points of maximum pessimism,” which, aside from calling up the spirit of Benjamin Graham, is about as close as you can get to scripture-reading for investors.  http://www.fool.com/investing/small-cap/2009/06/20/the-best-stocks-for-the-next-4-years.aspx.  Not to ruin the suspense, but the 4 stocks that people he talks to have picked are (1) Insmed (Nasdaq: INSM, a development stage biomed company headquartered in Richmond VA), which closed Friday at $2.47 vs a 52-week high of $2.57, and a market cap of about $309 million; (2) Satyam Computer Services (NYSE: SAY, a diversified software and services company in Hyderabad, India), which closed at $3.65 Friday vs a year-high of $3.71, and a market cap of just over $1.2 billion; (3) Allied Irish Banks (NYSE: AIB, as you might guess headquartered in Dublin), which closed Friday at $5.35 vs a year-high of $32.48, but up from $1.44 on March 30, 2009; and RF Micro Devices (Nasdaq: RFMD, from Greesnboro NC), which closed Friday at $3.69 vs a 52-week high of $3.98 and with a market cap of about $980 million.  Note the lack of niche industry orientation and broad geographic interest.

Of course Wiederman also quotes a bear saying the bottom could fall out —  to keep things well balanced.

No one seems to have an unqualified opinion about whether we are still headed down, whether we are sitting on the bottom, or whether we have started back up.  There are numerous favorable indicators, like a drop in overall unemployment claims; a slight revival of housing prices in a few areas that may be bellwethers like Orange County and San Diego, CA; more buoyancy in the market in general; more roadshows and more deals (though most are still PIPEs, registered-direct and discounted sales to PE investors — and a dizzying array of warrants are being issued). 

Monday morning Apple announced that it sold 1 million new iPhones over the weekend, twice what it expected — impulse purchases every last one.  And bring on more media stories about the best car under $18,000 and how to refi your mortgage at these low rates.  I was particularly amused this weekend with stories that bigname luxury stores are stocking cheaper merchandise —  who knew?  And there was a network news story on WalMart’s aisle endcaps showing a one-cup coffee brewing system for $109.95.  I beg your pardon?  Payback period on that, please?

Either the price of oil going up is good news (increased demand) or bad news (gonna hit the consumer at the pump), but it is definitely a sign that one industry is beginning to move again.  The same is true of the general fascination of the press with greentech issues — many of which are beckoning investors to rather small companies with rather sketchy performance histories (but interesting IP, of course).

BioMedReports.com issued a report on adult stem cell companies, a bit esoteric, but right in the middle of the policy liberalizations of the Obama administration with regard to biotech research.  If that interests you, have a look at http://biomedreports.com/articles/most-popular/1423-next-big-boom-adult-stem-cell-stocks.html for commentary on 5 stem-cell companies we can almost guarantee you have never heard of (but may want to know about). 

We are not investment advisers, and it’s a good thing, because the wobblies might have come even sooner if people had invested in everything we wrote about.  We write about interesting and newsy companies, many not even publicly traded, not just stocks we think will surely go up.  But we have the feeling that the market, while it operates to a certain extent on hard, quantifiable things like news and earnings, interest rates, currency movement, energy &  commodity prices, same-store sales, etc — is equally a critter that moves on instinct.  Isn’t “consumer confidence” an essentially fake extrapolation expressed as a percentage to make us trust it more? 99 and 44/100ths percent pure.

So when we saw an article with the title “Wall Street Looks to Refuel Rally in Week Ahead” on Sunday morning, it made the coffee taste a whale of a lot better: http://money.cnn.com/2009/06/21/markets/sunday_weekahead/index.htm?postversion=2009062107.  It is for SURE not a cockeyed optimist’s view of the world, but it is an almost 180-degree switch from headlines we got used to seeing in the cold, cold winter of our 2008-2009 discontent.  The more people ponder whether the worst has passed, the more likely it may be — it seems to us untutored folk — that attitudes may be able to act as a self-fulfilling prophecy.  Many of the companies we have written about over the last 6 months have done really well, and very few have missed big on something important (yes, there is always a laggard here and there — HURRY UP NOW, KEEP UP WITH THE CLASS!).

Point being that it seems that the basic palaver has changed from “how bad can it get?” to “how soon can it get better?”  And that may signal more to us than the basically historical numbers that we hold our breath for every week.