Harry Newton's In Search of The Perfect Investment
Technology Investor. Harry Newton
AM EDT, Friday, September 18, 2009: STEC dropped a whopping 17% yesterday.
The catalyst was
a partly negative (and confusing) eight-page analyst report by Betsy Van Hees
of a small brokerage firm called Wedbush. She wrote "While we maintain
our Outperform rating on STEC, we are reducing our PT (price target) to $39
(from $45) following our recent round of industry channel checks that indicate
the competitive landscape in SATA/SAS enterprise SSD (solid state drive) market
is intensifying above our previous expectations."
Yet, she points
out that "(our) checks indicate Q3 is tracking ahead of Str. (street) and
our estimates driven by continued strength in ZeusIOPs (an important STEC product).
Although we recently increased our Q3 estimates primarily due to higher than
expected shipments of Mach8 to IBM (one of STEC's key customers), our recent
checks suggest that Q3 is tracking ahead of the Str. and our pro forma EPS and
revenue estimates of $0.47 and $97MM, respectively, driven by strong demand
You can read the
rest of her report here.
Some odd aspects
1. She confuses
SATA/SAS -- one market the company doesn't play in (SATA) with the other (SAS
-- serial attached SCSI) the company does play in.
2. The analyst
wrote the report without contacting anyone at the company. A reputable analyst
traditionally runs their ideas by the company to check their facts and get their
reaction. The analyst doesn't have to accept what the company says. But it provides
a reality check.
3. All the vague
alleged innuendoes about future competition (see the report) are actually well-known,
and in fact, old news.
4. There is huge,
new competition in solid state SATA drives for laptops and PCs. Samsung/Corsair
is selling them. I have one in my laptop. I recently wrote about it. I love
it. But this is not a market that STEC plays in.
5. The company's
stock is heavily shorted -- presently about 25% to 30% of the float. Funny thing
is that the company's stock has been almost as heavily shorted as when it was
$5 -- early this year. The shorts have been seriously hurting.
As you know from
yesterday's column, I sold half my holdings when I saw this:
as it fell, I dumped the rest. (I did not lose money on STEC.) I sold for two
1. Clearly, the
negative (though flawed) Wedbush report was having a major impact.
2. STEC is thinly
traded. A single report from a tiny firm wouldn't impact a Microsoft, or an
Will I buy STEC
back? Frankly, yes. At what price? I don't know. I'll watch it today. I hear
there's a positive JPMorgan report out this morning.
I like the company.
I like the management. The founders are still there. I love the publicity which
SSDs are getting. Education is what this market has needed. It wakes IT managers
up to the awesome benefits of SSDs. I love the SSD in my laptop. Education should
benefit STEC mightily. The vast bulk of STEC's potential market -- all those
drives that hang off enterprise servers -- are still the slow, platter drives.
90% of STEC's sales go to five companies -- EMC, IBM, Sun, HP and Hitachi.
Frankly, I don't
like focusing so heavily on one stock in this column. But STEC has fascinated
me for one huge reason -- the stuff it sells portends a major revolution in
the computer industry. I've been through many of these revolutions in the past
30 years. There are always huge profits to make. Remember Microsoft? It was
a booming stock, once.
once again, booming on Wall Street. But technology is fickle. And the one lesson
I take away from STEC is what God giveth, He can take away very fast. I was
right to get out with that weakness. Someone clearly knew that Wedbush report
was coming and traded on it. You have to keep a close eye on your tech stocks.
Now look at Apple
-- another stock I've been pushing. This chart popped into my email last night:
Insider commented, "Apple shares closed up 4% today, peaking at a new 52-week
high of $182.75. Why? Kind words from CNBC's Jim Cramer last night, and a Needham
& Company analyst this morning, who jacked his price target to $235.
It's been a heck
of a run for Apple, whose shares have more than doubled since January, shortly
after Steve Jobs announced he was going on medical leave. Since then, the momentum
behind the iPhone -- and speculation about Apple's next product, a tablet computer
-- have driven shares skyward.
The stock is now
within spitting distance of an all-time high. (Microsoft, meanwhile, trades
at about one third of its own all-time high.)
Hashanah is Jewish New Year. It begins tonight. You should wish your
SHANA TOVAH ,
which means they should have a very Happy and Peaceful New Year.
According to the
Jewish calendar, the year is 5769.
According to the
Chinese calendar, the year is 4706.
This means that
the Jews went without Chinese food for 1,063 years.
In Jewish history,
this period was known as the Dark Ages
is a major Jewish festival.
are typically characterized by three pieces of "logic:"
1. They tried
to kill us.
2. They failed.
3. So, let's eat.
This column is about my personal search
for the perfect investment. I don't give investment advice. For that you have
to be registered with regulatory authorities, which I am not. I am a reporter
and an investor. I make my daily column -- Monday through Friday -- freely available
for three reasons: Writing is good for sorting things out in my brain. Second,
the column is research for a book I'm writing called "In Search of the
Perfect Investment." Third, I encourage my readers to send me their
ideas, concerns and experiences. That way we can all learn together. My email
address is .
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