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Stocks Can't Shake the Summer Torpor

Tech investors are being forced to rummage for survivors. Is Lucent one of those?

Wall Street was supposed to have come out of its stupor by now. The catalysts aren't lacking: There's earnings season, and the


testimony formerly known as Humphrey-Hawkins. But trading has been languid in recent weeks.

It's a worrisome sign for traders. Volume is their lifeblood. Meanwhile, the lack of activity signals a lack of fresh ideas in the marketplace or, worse still, a lack of interest in general.

"The bigger boys aren't committing capital," says Sam Ginzburg, senior managing director of equity trading at Gruntal. "It's just people renting stocks back and forth intraday. And there's a lot of dead pockets in the day -- dead time where nothing is going on."

It may be that many larger investors simply aren't comfortable making new bets these days. "Individual stocks have a problem right now," says Phil Ruffat, strategist at Fuji Futures in Chicago. "They have to jump through two hoops. It's not enough just to meet or beat estimates, you have to provide visibility

on the future."

That's a tall order, and in the current manic-depressive environment, it's hard to figure out how investors, in general, are going to respond to company reports. Many larger firms appear to feel more comfortable using index futures to make their bets on a second-half recovery than they do placing chips on individual stocks. As a result, says Ruffat, "You have the futures doing all the leading at this point."

Low-volume, futures-led trading is something of the norm for the latter half of the summer. But that doesn't make it easy. Trading gets choppy and there can be big swings, like yesterday's downturn, that move through the market without fear or favor, forcing one to strain to figure out why groups of stocks that are supposed to move counter to one another -- consumer cyclicals and consumer staples, big pharma and energy -- should all get hit at once.

It's no wonder so many take August off.

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fell 18.4% yesterday after reporting disappointing -- which is to say, even more disappointing than expected -- results for the quarter ended June 30. Today it's catching a bit of a bid, helped partly by the near-inevitable snapback after a big fall, but also by a positive note from Lehman Brothers analyst Steven Levy.

Levy upgraded Lucent to buy from hold and slapped an 18-month price target of $18 on its shares. That would put the troubled telecom-equipment maker 180% higher than where it closed yesterday. He listed a number of reasons why he'd gone positive on the company: improvement in Lucent's balance sheet, a belief that the company's debt position is manageable, pervasive investor negativity.

But in essence, the call comes down to something like a survivor trade. Buying Lucent now would be like buying Citibank in late 1990, or buying Chrysler in 1979.

Questions of survival dominate tech and telecom investing in general. Capacity utilization rates are low, and so's demand. Meanwhile, as an overhang from the late-1990s investing bubble, there are too many companies out there. "For the second- and third-tier companies," says Banc of America Securities equity portfolio strategist Tom McManus, "you clearly have survivorship problems."

This all sets up for a difficult dichotomy in the market between the companies whose survival is pretty much guaranteed and those for which it's questionable. Investors with a penchant for tech must decide which they want to put their money into. If they buy stock in a company whose survival is questionable, they'll need to pray it either soldiers on until capital-equipment spending picks up appreciably, or hope that it gets taken out by a well-heeled competitor. The worst thing that can happen, says McManus, is that the well-heeled competitor decides to buy a different company. "Consolidation in the sector clearly creates a problem for the unwed partner," he says.

The other possibility is to put money with companies that are clearly going to make it. But even after having fallen stunningly off their highs, these are still richly valued.


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, for instance, trades at about 95 times next year's estimated earnings. And, of course, the accuracy of those estimates are the matter of some doubt.

Happy bargain hunting in tech land.