DON’T say I didn’t warn you.
Back in July, this column said Wall Street was starting to get nervous about the personal computer business. “Some investment people [are] very concerned about the still-high price of stocks like Apple Computer, Gateway and Compaq,” this column said on July 12.
What tipped me off was a research note from Andrew Neff, a Bear Stearns analyst, saying that Compaq Computer was seeing weakness in the $600-and-under consumer PC market. He said retailers such as Costco, Office Depot and Circuit City were also seeing computer sales drop.
Whadya’ know!
Last week Apple Computer said its current quarter profits would be much less than had been expected, and shares of the company immediately lost half of their value.
And Apple dragged down shares of the whole industry. Before the announcement, computer hardware stocks were about 7 percent higher than they were back in July. Yesterday they were about 7 percent lower than July’s level.
The 14-percentage point swing wasn’t nearly as bad as the Internet stocks have done, but investors are clearly snakebitten by the performance of all the former darlings in high-tech land.
How are Gateway and Compaq doing?
Gateway was above $70 when Taking Stock’s antenna picked up those first warnings, and now its less than $50. Compaq is currently selling at a few bucks above its July price, but it is down about 20 percent from its $34.625 high in mid-August.
So, what’s next?
I caught up with Neff, who says he is still cautious on all the companies that sell computers to consumers. And, he tells me, Christmas sales this year of the machines will be “OK, but not great,” adding that the whole industry “remains challenging.”
Compaq, because it is a turnaround situation, looks like the best of the bad lot. But Neff actually likes EMC Corp., which makes storage systems for high-end computers. So do a lot of other people; the stock’s up 40 percent in four months and now sells just under $100.
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Watch York International, a company whose stock went from the low of $20 to $29 a share in July for no apparent reason.
York had hired a Wall Street adviser early in the year to “review financial and strategic alternatives,” but nothing had been heard since.
An update: York still hasn’t said anything about the financial review. But after its stock went back down to nearly $20 a share recently, it shot back up to around $25. The dip happened because of earnings problems.
The rebound? I’m guessing it’s because somebody knows that the financial adviser is actually getting something accomplished that’ll result in the acquisition or reorganization of the company.
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You can look at current earnings projections two ways.
The optimistic way: Research firm I/B/E/S says that only 69.9 percent of the companies that have pre-announced their earnings results this quarter are warning about negative developments.
That’s a lot lower than the 83 percent that historically issue such warnings.
And Wall Street analysts are still expecting a healthy 15.3 percent jump in quarterly profits. I/B/E/S, a Wall Street firm that tracks such things, believes profits could actually be higher by 18 to 19 percent.
What’s the pessimistic way of analyzing this data?
Wall Street and the companies themselves may be fooling themselves by being way too upbeat about earnings. If that’s the case, stock prices may be punished a lot more if the actual profits come in much lower than expected.
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The good news in the recent rise in oil prices is that refiners now have their best profit margin ever.
Prudential Securities is telling customers that margins are up 45 percent from last year’s levels and are 35 percent higher than the five-year average.
Even though independent refiners’ stocks have outperformed the overall market by about 24 percent this year, the brokerage firm still thinks there is 13 percent upside potential.
Valero Energy is Prudential’s top pick among independent refiners. The brokerage firm thinks Valero’s stock could rise in price anywhere from 21 to 42 percent.
* Please send e-mail to:
jcrudele@nypost.com