Jim's '25 for 2000' Showed Market's Pains as Well as Gains

When I posted my annual list of 25 stocks to watch as bellwethers for the tech market back in January, I expected most of them to see gains this year. And, maybe, few would suffer losses. But of course I didn't see the April Massacre coming. And so I didn't expect as much pain as this ugly second quarter delivered.

Time for a first-half review.

First, though, I have to repeat my oft-stated disclaimer: This isn't intended as a portfolio, or anything like a portfolio.

No static list of stocks posted in January and up for a year could possibly be considered a recommended portfolio -- as I have written here so many times. Rather, this list was intended to flag some likely winners, and more, to point out the kinds of stocks that were likely to give us signals about tech's performance in this market.

So in the end, I'm not so surprised by the performance of these 25 stocks. I had a few big winners, despite the market turbulence; and I had a bunch of losers, including a few real stinkers.

Sounds like the tech landscape this year.

Here's a list of the stocks from those original January columns with their split-adjusted performance from Jan. 1 through June 30. I strongly suggest you read all three of them for context, and if you have the time, you might want to read my year-end wrap-up on my "25 for 1999" picks, as well. (I am indebted to TheStreet.com editorial assistant Kevin Burke for assembling these numbers.)

'25 for 2000' First-Half Update
Company	1/1/00 Price	6/30/00 Price	YTD Gain
Juniper	56 21/32	145 9/16	157%
PMC-Sierra	80 5/32	177 11/16	122%
Corning	128 15/16	269 7/8	109%
Broadcom	136 3/16	218 15/16	61%
JDS-Uniphase	80 21/32	119 7/8	49%
Texas Instruments	48 5/16	68 11/16	42%
Inktomi	88 3/4	118 1/4	33%
Cisco	53 9/16	63 9/16	19%
Sun Microsystems	77 7/16	90 15/16	17%
Ariba	88 11/16	98 1/16	11%
Sycamore	102 11/16	110 3/8	8%
Nokia	47 25/32	49 15/16	5%
Exodus	44 13/32	46 1/16	4%
Dell Computer	51	49 5/16	-3%
Foundry Networks	150 27/32	110 1/2	-27%
America Online	75 7/8	52 11/16	-31%
Kana Comm.	102 1/2	61 5/8	-40%
Yahoo!	216 11/32	123 5/8	-43%
Phone.com	115 15/16	65 1/8	-44%
Global Crossing	50	26 5/16	-47%
Commerce One	98 1/4	45 13/32	-54%
VerticalNet	82	36 15/16	-55%
CMGI	138 7/16	45 13/16	-67%
Internet Capital Group	170	37 1/32	-78%
ION Networks	22 3/8	3 1/16	-86%
Source: TSC Research

And here are some comments on them, grouped as they were in the January columns:

Computers

Just two companies here this year -- the hardware business just isn't as promising as it once was. I suggested Dell (DELL Quote), because I think it has the best chance of popping up big this year, thanks to its exploding Windows and Linux server business, and Sun Microsystems (SUNW Quote), for exactly the same reason on the Unix side of the aisle.

By midyear, Dell was down a little, after struggling back up from a low of 37 in late January. A flatter-than-expected quarter, attributed by Dell in part to component shortages (mainly Intel chips), plus the general malaise in the box-making business, has hurt Dell this year.

Its desktop and notebook businesses are doing well, and Dell remains the preferred supplier for a long list of top corporations. Indeed, it has benefited there from defections from Compaq (CPQ Quote). On the consumer side, Dell's doing OK, but Gateway (GTW Quote) is roaring in consumer direct sales and Hewlett-Packard (HWP Quote) is becoming the big dog in consumer sales at retail, where Dell doesn't play.

Dell's consumer side also got a high-profile black eye this week, as it discontinued sales of its highly touted WebPC, a great-looking sort of all-in-one home PC that just didn't draw much consumer interest. (I regretted that, because it's a great machine -- and at the closeout prices now found on Dell's online factory-outlet site, it's a steal. Still, the market, having writ, moves on...)

A month or so after that ''25 for 2000'' column appeared, I wrote here that thanks to the huge gains in Dell's very profitable server business, I expected to see them in the 70s by year-end. I still do.

Sun's done well, though not as well as I expected, since the first of the year. One of the inescapable side effects of the market crunch on dot-coms is a parallel sag for their biggest suppliers: the dot-coms simply can't spend money the way they used to, and they especially can't simply throw money at technical problems any more.

That approach usually translated into adding more servers, quickly, as a brute-force answer to performance problems. Now we see other paths, such as edge-of-the-Net caching a la Akamai (AKAM Quote) and Inktomi (INKT Quote), as more sophisticated answers than buying another $300,000 all-the-bells-and-whistles Sun server ... or two, or five.

Another issue that's becoming a problem for Sun: the migration by dot-coms, and some corporate users as well, away from high-priced brand-name Unix servers, such as Sun's, to much less expensive Windows or Linux-based servers. Test after test has shown that a larger number of these generic servers -- which may, of course, have names like Dell or Hewlett-Packard on them -- provide more performance for less money, and the additional benefit of redundancy, than a few Sun boxes.

I suspect that no hardware company has more dot-com customers than Sun, whose industrial-strength Solaris-powered servers fill dot-com's server farms, and lie at the heart of the Net itself. So over time, these changes have to hurt.

I'm not worried; I expect to see Sun keep climbing.

But it is fair to ask if the company will ever again be the shooting star it once was. I don't think so; that phase of the hardware business is over. I do, however, think Sun is one of the few relatively safe buys this year in computer technology. If the return is less than stratospheric for the year, at least we can be pretty sure there will be a return.

Come back later for Part 2 of this series, a look at the wireless and consumer Web stocks on that "25 for 2000" list.