A Dozen Stocks Still Defy Gravity

Fund Junkie: Weigh Your Tech Exposure and Consider a Diet

David Gaffen: Tech Stocks Not Cheap Yet

Justin Lahart: Margin Debt at Worrisome Levels

Jim Cramer: Get Liquid

Brett Fromson: Get Ready For Fourth-Quarter Pre-Announcements

Technical View: A Lesson in Tops for a Market Ready to Bottom

Metrics View: A Dozen Stocks Still Defy Gravity

Taskmaster Chat: Take a Defensive Posture

Fund Junkie: Climate Is Changing for Net Bellwether Stocks

Eight months ago it was common, perhaps even expected, for stocks to trade at unheard-of valuations, like 200 times earnings and 40 times sales. Today, many -- indeed most -- of those steeply valued stocks have been taken out and shot. Yet despite the widespread carnage, a handful of stocks continue to act like it's still early March.

The table below -- generated using Marketguide.com's stock-screening tool -- shows the 12 stocks that, entering this week, still traded at more than 200 times their trailing price-to-earnings ratios and more than 40 times their trailing price-to-sales ratios. (The trailing price-to-earnings ratio is the price of the stock divided by the company's last 12 months of earnings per share; price-to-sales ratio is the price of the stock divided by the company's trailing 12 months of sales per share.)

We also set the screen for stocks with market caps of more than $1 billion in an attempt to showcase the biggies that still command whopping multiples.

12 Stocks Defying Gravity
Name	Market Cap (in millions)	Price To Sales Per Share	P/E
Juniper Networks (JNPR) (JNPR:Nasdaq)	49023	122	601
Ciena(CIEN) (CIEN: Nasdaq)	29682	43	515
Brocade Communications(BRCD) (BRCD: Nasdaq)	24315	116	600
Applied Micro Circuits(AMCC) (AMCC: Nasdaq)	16239	53	241
ARM Holdings(ARMHY) (ARMHY: Nasdaq)	8677	73	214
Trend Micro(TMIC) (TMIC: Nasdaq)	7781	49	226
IDEC Pharmaceuticals(IDPH) (IDPH: Nasdaq)	7756	65	218
Research In Motion(RIMM) (RIMM: Nasdaq)	6438	53	1125
Autonomy(AUTN) (AUTN: Nasdaq)	5325	107	634
Finisar(FNSR) (FNSR: Nasdaq)	4083	45	911
Macrovision(MVSN) (MVSN: Nasdaq)	2928	42	226
Ulticom(ULCM) (ULCM: Nasdaq)	2041	54	525
Source: Marketguide.com, data as of November 17, 2000.

How have these stocks managed to be such rebels? And can they continue to be?

Two hedge fund managers, neither of whom holds positions in any of the stocks on our list, say it's not that these stocks are immune from the downdraft, just that their pain has been delayed.

"Remember at the end of the movie Jaws when the only guy left is Chief Brody? And the boat is sinking and the shark is circling and he keeps climbing to the part of the boat that hasn't yet sunk? That's what's happening with these stocks that still have these egregious multiples," says one hedge fund manager. "Investors are doing the same thing here that Chief Brody was doing in Jaws."

His point is that investors have climbed aboard a handful of stocks that haven't sunk -- yet. But "eventually the boat is going to sink," continues the hedgie, especially under all the weight of the investor pile-on.

Says a second hedge fund manager: "There is still a ton of excess out there and this list is a representation of that. That doesn't mean these are bad companies; Brocade is a great company. But now that reality has begun to set in, you get this multiple compression," he says. "You had stocks that were working and then all of a sudden valuation became important. It's all a matter of perception."

Indeed, one of the stocks on our list is succumbing to the new market realities already. On Monday, Juniper Networks (JNPR) was walloped after its stock was downgraded by an analyst at Morgan Stanley Dean Witter who cited an optical spending slowdown. And yet, even with Monday's beating, Juniper still remains richly valued by nearly any measure. At the close of Monday's action, Juniper was still sporting a P/E ratio of 474 and a price-to-sales ratio of 96.

Which leads to a final question: How much longer can the stocks on this short list continue to defy gravity?

Let us know what you think. Please send email to Mark Martinez.

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