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Murphy: Top Plays on Technology
08/15/2003 12:00 am EST
"We’re concerned about the short term and don’t expect the September quarter to be a good one," says tech expert, Michael Murphy. Given his short-term caution, Murphy is focusing on stocks that "have already taken a hit and are not likely to go down much even in a market setback." Here are his current favorites.
"Longer-term, we seem to be past the turn in the economy. We still think we are in a U-shaped recovery. It's slow getting off the ground, but we’re likely to see slightly greater GDP growth each quarter going forward. We think that technology will be leading all the way up in terms of growth rates.
"We have one healthcare recommendation, King Pharmaceuticals (KG NYSE), the drug maker. The company has been resolving an SEC issue regarding Medicare. They have had an internal company audit. That has been completed, they have identified the money owed, and they are going to pay it. I think that’s the end of it. What you’re looking for in stocks that have gotten smacked down is bad news that no longer makes the stock go down.
"Taiwan Semiconductor (TSM NYSE) has been down in price as a result of bad news from Nvidia, which is one of its largest customers. The semiconductor sector has a lot of negative sentiment towards it. But the positive leverage there is almost hard to grasp. The company owns its own factories and has tremendous costs–and the incremental costs of producing one more wafer is pretty small; they probably have 90% incremental profit margins. We would buy Taiwan under $12.
"In the software sector, BMC Software (BMC NYSE) was hit hard as a result of a soft quarter. But this is one of those big companies that supply a broad range of products–over 200 software programs. BMC deals with the very biggest customers who are no longer interested in dealing with small companies that sell only one product. These larger companies got burned in 2000-2001 when many of these small companies went bankrupt. We think BMC has a big market ahead of it, helping the legacy companies–the ones with large IBM installations–coordinate their software with their worldwide activities.
"JDS Uniphase (JDSU NASDAQ) isn’t expected to come back early. Fiber optics will probably among the last groups to rebound. However, we still think investors will make ten times on their money over the next three to five years. This company came into this downturn with some 40 private competitors funded by venture capitalists, as well as a handful of public competitors. Now, they are coming out of the slowdown with perhaps only two remaining competitors. Everyone else has had to shut their doors. One of the things you can do if you are a big company with a great balance sheet and a lot of cash is to take advantage of a downturn to drive all your competitors out of the business. JDSU has succeeded in doing that.
"Ballard Power (BLDP NASDAQ) recently trimmed their estimate for revenues for the coming year from about $120 million to $110 million and the stock has come down a bit. This is an unusual situation. It is a totally futuristic industry–fuel cells. Nobody is going to make any money for perhaps ten years. It’s very early stage. Yet, we already know who the winner is in the fuel cell industry–Ballard. I think you can just put money in at these levels and let it sit there for a long period of time."
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