This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

If You Were Surprised, Maybe You Weren't Paying Attention...

Eurotrashed

It's as if these guys don't listen to each other. Sun Microsystems (SUNW) blamed Europe on Tuesday for its reduction of revenue and earnings guidance for its current fiscal quarter. There have to be new excuses, of course. Now that there are not many breathing dot-coms to pick on, Sun no longer has that easy target. But those Europeans, they eat such rich, creamy sauces on their food. Yeah, that's it.

"Demand in Europe has tailed off more than we thought about six or seven weeks ago," said Mike Lehman, Sun's chief financial officer, in a thorough telephonic review for analysts of what ails Sun. "That's the news in this whole conference call."

And yet it was precisely six weeks ago that an executive just up the road from Sun's Palo Alto, Calif., headquarters predicted Europe would be next to weaken. In a conference call so brutal that the "it-couldn't-get-any-worse crowd" bid up the stock, Siebel Systems (SEBL) CEO Thomas Siebel predicted that Europe would begin to see as lousy a corporate IT spending climate as the U.S. had seen.

Siebel's best customers presumably overlap a bit with Sun's best accounts: Big businesses with big computing needs buy sophisticated software programs to manage their sales and customer-service functions as well as powerful servers to keep things humming. Lehman could have saved himself and Sun investors a lot of trouble by asking Tom Siebel what he was seeing six weeks ago that was so problematic in Europe.

For what it's worth, Siebel's shares rose 37% to $46.44 after it reported earnings on April 18. That proved to be overly exuberant, as those shares closed Thursday at $45.36. Sun's shares closed April 19 up 11% at $20.71. Thursday, Sun's shares set at $16.47, up 1% on the day.

Troika Was Worse Than Dead Money

Casual observers might believe that the fear Oracle (ORCL) will disappoint investors in the quarter that closed Thursday is new news. In fact, it's just that CNBC apparently had nothing else to discuss on a slow-news Thursday. But it was the topic of discussion here a month ago when James J. Cramer called the troika of Sun, Cisco (CSCO) and Oracle "dead money." Turns out it was worse. The troika traded for an average of $18.50 then; Thursday, the three had an average closing price of $17.01.

I pointed out at the time that share prices, of course, are meaningless. More meaningful, I argued, are relative valuations, and Oracle traded at a much lower multiple to its expected calendar 2001 earnings than the others. Interestingly, the situation hasn't changed much, despite the turmoil at Sun, the renewed enthusiasm for Cisco and the doubts about Oracle. Sun's stock, down 16% since May 4, actually trades at a higher multiple now because estimates of its earnings have fallen, from 35 cents per share a month ago to 25 cents today, according to Multex.com. Cisco's shares are flat; its earnings estimates actually have risen by a penny, and the forward multiple remains stratospheric, at 113 times current-year earnings.

But the real story remains Oracle, whose shares are down 8%, whose earnings estimates have been trimmed by just a penny, to 43 cents, and whose multiple remains relatively low, at 36 times current-year earnings forecasts, vs. 38 times in early May. Unless the company totally screws up, it's unusual for Oracle's shares to stay low for more than a year. Its valuation is reasonable only in comparison to its fellow fallen idols, of course, but it could start to look downright cheap for the long-term investor as each day goes by that it doesn't preannounce a lousy just-ended quarter.

Seeing Clearly at Research Frontiers

A column here Wednesday on the 36-year-old development-stage company Research Frontiers (REFR) noted that the firm is a favorite of short-sellers as well as more optimistic shareholders, many of whom like to mix it up on message boards devoted to the stock, affectionately known as Reefer, for its ticker. The fans have been emailing in force. Some of their questions and my answers follow:

  • Why did comments from licensees seem so uniformly negative?

    Well, Alex Martinez of aircraft replacement-window maker InspecTech Aero Service said the "smart window" technology Research Frontiers is peddling is so good his technical contacts at a major airline want to keep it away from the marketing folks, who will try to sell it too quickly. That's negative?

  • Why use old short-interest data?

    Good point. The short position has grown on Research Frontiers, meaning that investors have placed a larger bet the stock will fall. It stood at 892,000 on April 6, as noted, and at 1.1. million on May 15, according to Nasdaq.

  • Why repeat the company's claim of 360 patents without clarifying?

    Again, good point. Executive Vice President Joseph Harary made it clear to me that Research Frontiers has 360 patents and applications, though the company consistently plays up the strength of its hundreds of patents. David Miller, president and editor in chief of NymbleInvestor.com, an independent financial research site, says that his analysts determined that as of two years ago, the number of active patents was in the 40-something range. The balance were patent applications, many of which were duplicate overseas filings.

  • In keeping with TSC's editorial policy, Adam Lashinsky doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, frequently guest hosts the TechTV cable television news show Silicon Spin, and is a regular commentator on public radio's Marketplace program. He welcomes your feedback and invites you to send it to Adam Lashinsky.

    Select the service that is right for you!

    COMPARE ALL SERVICES
    Action Alerts PLUS
    Try it NOW

    Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

    Product Features:
    • $2.5+ million portfolio
    • Large-cap and dividend focus
    • Intraday trade alerts from Cramer
    • Weekly roundups
    TheStreet Quant Ratings
    Try it NOW
    Only $49.95/yr

    Access the tool that DOMINATES the Russell 2000 and the S&P 500.

    Product Features:
    • Buy, hold, or sell recommendations for over 4,300 stocks
    • Unlimited research reports on your favorite stocks
    • A custom stock screener
    • Upgrade/downgrade alerts
    Stocks Under $10
    Try it NOW

    David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

    Product Features:
    • Model portfolio
    • Stocks trading below $10
    • Intraday trade alerts
    • Weekly roundups
    Dividend Stock Advisor
    Try it NOW

    Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

    Product Features:
    • Diversified model portfolio of dividend stocks
    • Alerts when market news affect the portfolio
    • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
    Real Money Pro
    Try it NOW

    All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

    Product Features:
    • Real Money + Doug Kass Plus 15 more Wall Street Pros
    • Intraday commentary & news
    • Ultra-actionable trading ideas
    Options Profits
    Try it NOW

    Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

    Product Features:
    • 100+ monthly options trading ideas
    • Actionable options commentary & news
    • Real-time trading community
    • Options TV
    To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
    Submit an article to us!
    DOW 16,987.51 -61.49 -0.36%
    S&P 500 1,985.54 -11.91 -0.60%
    NASDAQ 4,567.5980 -24.2080 -0.53%

    Brokerage Partners

    Rates from Bankrate.com

    • Mortgage
    • Credit Cards
    • Auto

    Free Newsletters from TheStreet

    My Subscriptions:

    After the Bell

    Before the Bell

    Booyah! Newsletter

    Midday Bell

    TheStreet Top 10 Stories

    Winners & Losers

    Register for Newsletters
    Top Rated Stocks Top Rated Funds Top Rated ETFs