Tech Bull Seeing (More) Green...
SAN FRANCISCO -- I caught up with John Skeen, director of portfolio strategy at
Banc of America Securities
, late Monday. If you recall, Skeen's picks from
Sept. 30 were the standout performers in the report card posted
I return to Skeen because while a lot of other people were prophesizing doom back in late September, he was steadfastly bullish about the market, and tech stocks in particular. And I don't have to mention the wisdom of that call, do I? (
Today's setback notwithstanding.)
Furthermore, he's taking a seemingly rational approach to what's gone on in the past six weeks (as if rationality has a place anymore).
"Obviously there's some speculative action in the dot-com IPO market, but there isn't a sign of a fundamental problem" with the markets overall, he said. "I'm still bullish on the outlook for the telecom ramp around the globe, which benefits a whole range of companies."
Given the "tremendous move" by many tech names, there will be corrections in individual names with "monster" valuations that disappoint, he predicted. (That forecast would prove true sooner than he expected, no doubt -- more on that in a minute.) But such developments won't be a "general theme," the strategist said. "The fundamentals are extremely strong."
He forecast the
will hit 1600 by year-end 2000, outperforming the
, which he sees at 3800. The market will broaden beyond its current tech obsession in the coming year, Skeen predicted, noting the median stock in the
universe is trading at 15.5 times next year's projected earnings.
"I'd be more concerned if the average stock was at 20 times," he said. The market is "dangerous," but the danger signs are "well chronicled."
That bullishness is also predicated on a belief that long bond yields "are peaking" and won't rise above 6.40%. Skeen admitted that view is "controversial" -- it was looking more so
today, when the price on the 30-year fell 1 12/32, sending its yield rising to 6.30%.
...Despite Some Red Creeping In
As for specifics, Skeen is still (groan!) keen on most of the names he liked back in September.
Level 3 Communications
, which closed up 11% to 79 15/16 Tuesday, he has a price target of 100. For
, down 8.9% to 96 5/8, he's eyeing 120.
Fifth Third Bancorp
is still a favorite, with a target of 83; it closed up 0.7% to 66 5/16 today.
"has been on a tear -- screaming," Skeen acknowledged. But he's still recommending the stock, having recently upped the price target to 130; today, the stock fell 5.2% to 123.
also remains in favor, he said, but that was before the stock was nearly halved in after-hours trading Tuesday. After the company posted second-quarter earnings of 9 cents a share vs. the five-analyst estimate of 12 cents, its stock was quoted as low as 24 in after-hours trading vs. its New York session close of 49.
"Here's the deal: Basically, licensing revenue was supposed to be $16 million, but it came in at $10 million," Skeen said in a follow-up call late Tuesday. The company attributed the shortfall to the delay in closing of three large transactions, two of which were completed since quarter's end.
But Skeen was dubious.
"We're going to revisit the whole thing," he said, noting the stock had already exceeded the 48 target. "I won't know until later on, but I suspect we won't be pounding the table, even at 25."
Verity's e-commerce business was better than expected, the analyst noted; thus, "I don't think this is a negative for the e-commerce space."
However, he acknowledged many investors won't make the distinction.
"They'll sell 'em off," he said of Verity and its peers. "Particularly after seeing the Nasdaq down 85 today, they'll hit 'em tomorrow morning. My suspicion is many houses will downgrade
Verity, maybe ourselves included."
Verity's retrieval software is used by corporate intranets, PC makers and other software vendors, as well as by online content and e-commerce providers. Thus, its competitors span a wide range of companies and include (to varying degrees) highfliers such as
as well as more established players such as
On the other side of the performance coin, Skeen is still recommending
, with a target of 28 vs. today's close of 16 1/2, and
, with a target of 65 vs. 37 1/2 today.
, which "went bananas," and
have been removed from the recommended list after "achieving price objectives," he said.
So what's new? Accompanying BroadVision, Darden, AnnTaylor and Fifth Third on Banc of America's "fresh money buy list" are
(price target of 130),
But it was rough going Tuesday for Celestica (down 9.9%), Flextronics (off 8%), and Sanmina (lower by 11%).
The declines followed disappointments in the quarterly results posted by
, which fell 9.2% after raising concerns about a potential inventory buildup. (
looked at Solectron in a separate
story on Tuesday.)
But Banc of America "remains very bullish" on the three contract manufacturers, Skeen said. "We think this
setback is a tremendous opportunity."
Other names Skeen finds "interesting" are
Of the aforementioned, Banc of America has done underwriting for Level 3, Verity, BroadVision, AnnTaylor, Wells Fargo, Fifth Third, Celestica, Flextronics and Sanmina.
Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he 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. He welcomes your feedback at