When you look to buy a tech stock trading between $1 and $3, you have to beclear that you're buying shares in a potential bankruptcy. Stocks in thiscategory are option plays on survival, and you should buy them only if youcan afford to lose 100% of your money, as stocks become worthless atbankruptcy.
Keep in mind that if you buy a stock option, that option expires worthlessat its expiration date. In the case of buying a stock trading under threebucks, there is no expiration date, but it is worthless on bankruptcy, sothe price you pay is the premium.
My fundamental model shows that technology is now 14.4% undervalued, withhealth care the only other undervalued sector at 4.2%. All other sectorsare overvalued, with energy 9.7% overvalued after getting the most investorattention for much of 2005.
This is an environment where some speculation on low-priced technologystocks should be considered, and I highlight three potential survivorsbelow.
Demand for upgrades in broadband and related Internet protocol applications should help
survive. Increased demandfor secure management software, on modernized networks, should help
Here are my screenings for these three potential survivors. One note: I am providing a "buy zone" for each without upside price targets. A rule of thumb is to book 50% of the gain if the stock doubles and keep the balance of the position, hoping for the stock to return to its fair value.
Lucent Technologies, by my models, is 73.4% undervalued, making its fair value$10.98. The weekly chart profile is neutral, suggesting the stock is in atrading range. The low end of the range should be between my weekly valuepivots at $2.76 and $2.92. (A value pivot is a value level that did not hold on weakness and is now acting as a magnet as buyers and sellers battle for control; a value level is a price at which my models project that buyers will emerge.)
Ciena is 75% undervalued, putting it fair value at $8.52. The weekly chartprofile is neutral, suggesting a trading range for this stock, too. The lowend of the range should be between my monthly/weekly pivots at $2.16/$2.47.
Actuate provides an enterprise software reporting application platformfor corporate information management. According to my models, this stock is 62.9% undervalued, so its fair value is around $6.47. The weekly chart profile is positive, and my model shows a buy zone between a weekly value level at$2.10 and a monthly value level at $2.20.
If you have any other low-priced names you want me to profile,
. I will cover them in Tuesday's Tech Trading Diary.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider Actuate to be a small-cap stock. 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.