Let's update the status of the stocks on the shelves of my Tech Five & Dime.
On Aug. 22, I wrote about the top three tech stocks, according to my models, that were trading between a buck and $3. As the table below shows,
is up 6.3% since then,
is up 13.2%, and
is up 25.1%.
On Sept. 6, I profiled the top three tech stocks under my models that were trading between $5 and $10:
( IWOV), which has fallen 2.7%;
( MUSE), up 13.2%; and
, up 5.6%.
On Sept. 7, I shared with readers the best-screened tech stocks trading between $3 and $5; Lucent graduated to that category on Aug. 24. Since then, Lucent is up 2.2%,
is up 9.6%, and
Terayon Communication Systems
is up 14.7%.
On Sept. 21, I decided to open shelves in the Tech Five & Dime by industry group, stocking up on office and computer equipment and computer manufacturers and electronic devices.
( TLAB) is already up 10.7%. On Sept. 23, I added a software company shelf.
In October, I plan to stock the shelves with low-priced semiconductor and computer-related companies.
On Aug. 22, I wrote that Actuate was 62.9% undervalued and showed a monthly value level of $2.20. This price held on weakness Aug. 29. The shares are currently 62% undervalued. My quarterly value level at $2.14 should hold on weakness, and the upside is to my quarterly risky level at $3.17.
Lucent is 55.0% undervalued vs. 73.4% on Aug. 22. My monthly value level of $2.62 should hold on weakness, and the upside is to my quarterly risky level at $4.47.
Ciena has been weak since Aug. 22, but it held my monthly value level for August at $2.16. The stock remains 75% undervalued. My quarterly value level is $2.13, and I don't have a risky level at this time.
Interwoven is still 75% undervalued. It couldn't get above its 200-day simple moving average, which was around $8.50 in mid-September. My quarterly value level of $7.63 should hold on weakness, and the upside is to my quarterly risky level at $10.17.
Micromuse is currently 56.2% undervalued vs. 65.7% on Sept. 6. The low on Sept. 21 was $6.52, as compared with the 200-week simple moving average of $6.63 and my monthly value level of $6.47. Micromuse has gained momentum, closing on Sept. 23 above the five-week modified moving average at $7.46. My monthly value level is $7, and I do not show a risky level at this time.
is 29.4% undervalued vs. 45.8% on Sept. 6; this means you should buy weakness to get a cheaper valuation. The weekly chart is positive, but shares are on the cusp of the 200-week simple moving average at $5.65. My quarterly value level of $5.07 should hold on weakness, and I do not show a risky level.
Intellisync has been the most volatile of the stocks on the list so far. It fell to $3.56 on Sept. 9, below my quarterly pivot at $3.79, but the snapback was strong. Intellisync is currently 55.8% undervalued, as opposed to 56.4% undervalued when I first listed it. My monthly value level is $4.03, with a monthly pivot at $4.64 and upside potential to my annual risky level at $10.36.
Tellabs is 34.3% undervalued at present, vs. 40% when I stocked it. I initially projected that a weekly close above my monthly pivot at $9.63 would put the stock on track to move above $10, and indeed it did. Equity money managers with a $10 price threshold should now consider Tellabs for the long term. My monthly value level is $8.15, with a monthly pivot at $10.37 and a quarterly risky level at $11.11.
I will hold off on updating the profiles for the other stocks in the table, as they were put on the store shelves less than two weeks ago. If you have a low-priced tech stock for me to screen, please email me.
Guidelines for Price Levels
Low-priced stocks, those trading for less than $10, are particularly attractive to individual investors, because it's easier to establish a large position in these stocks with less capital. But before you invest in any of the stocks that fall into any of the four categories I've outlined, please consider the amount of risk you can tolerate, and be aware that all of the stocks in these groups should be considered speculative.
Options on Survival:
This group includes stocks trading in the $1-to-$3 range. Stocks in this category are option plays on the company's survival. Buy them only if you can afford to lose 100% of the investment, because stocks become worthless at bankruptcy, which is a high risk for companies with stocks in this price range.
Margin Threshold Stocks:
Stocks in this group trade for less than $5 but more than $3. Many brokerage firms will not allow their clients to buy stocks trading for less than $5 on margin. Keep in mind that these stocks trade below $5 for a reason, like their Options on Survival kin; these companies are at risk for bankruptcy. However, unlike members of that lower-priced group, stocks that trade between $3 and $5 have a better chance of survival.
This class of stocks, those that trade between $5 and $10, tends to stay in that range. Many mutual fund managers, according to their fund guidelines, may not own stocks trading below that upper level. If there is a reason for a stock to fall below $10, expect to see selling pressure from the mutual fund managers. Once the selling subsides, and if the stock stays above $5, some speculation is merited in stocks that still have positive profiles.
A good strategy for members of this group is to buy tech stocks trading for less than $10, but to keep a sell-stop in case the stock breaks below $5. Stocks from the Five & Dime should be considered speculative. But they can be rewarding if you find the ones that can get back above $10 before they break below $5. A positive chart profile is a good indicator for stocks trading in this range.
Stocks Below $1:
Often called penny stocks, stocks that have drifted down from higher levels to become members of this group become subject to delisting. I will not comment on these, or on stocks trading on the bulletin boards or pink sheets because they are so volatile, illiquid or hard to research, if not all three.
My Keys to Trading
I calculate a fair value for every stock, which is the price at which the stock would trade at in a perfect world. Fair value is not a price target. Fair value is based on the stock's past data and projections for the future. Fair value is based on the trailing 12-month EPS, the forward 12-month estimated EPS and the yield on the 30-year Treasury. These data points are weighted on the basis of a historical analysis of the stock's price history, and 17 other variables influence the calculation, according to the stock's sector and industry group.
Weekly Chart Profile:
A stock with a positive profile has a weekly close above its five-week modified moving average with a rising 12x3 weekly slow stochastic, which is a measure of momentum on a scale of zero to 100. A reading below 20 is oversold, while a reading above 80 is overbought.
Value Levels, Risky Levels and Pivots:
A value level is a price at which buyers should emerge on share-price weakness. A risky level is a price at which sellers should reduce holdings on share-price gains. A pivot is a value or risky level that was violated in its time horizon and that acts as a magnet during the remainder of that time horizon. These levels are calculated in weekly, monthly, quarterly, semiannual and annual time horizons, on the basis of the past nine closes in each time horizon. My theory is that the closes over a nine-year period are the summation of all bullish and bearish events for that market or specific stock.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider Ditech Communications, Tut Systems, Westell Tech and Entrust to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
Richard Suttmeier is president of Global Market Consultants, Ltd., chief market strategist for Joseph Stevens & Co., a full service brokerage firm located in Lower Manhattan, and the author of
newsletter. At the time of publication, he had no positions in any of the securities mentioned in this column, but holdings can change at any time. Early in his career, Suttmeier became the first U.S. Treasury Bond Trader at Bache. He later began the government bond division at L. F. Rothschild. Suttmeier went on to form Global Market Consultants as an independent third-party research provider, producing reports covering the technicals of the U.S. capital markets. He also has been U.S. Treasury Strategist for Smith Barney and chief financial strategist for William R. Hough. Suttmeier holds a bachelor's degree from the Georgia Institute of Technology and a master's degree from Polytechnic University. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback --
to send him an email.