Shares of Sun continue to set. A week ago, the stock dropped 19% to $3.85. I wrote that you should wait a while longer to buy back in. The stock poked its head above $4 and is now down at $3.74. I'm still holding out for cheaper prices. I think $3.50 is almost guaranteed and would not be shocked to get back in at $3. That would be a price roughly 41% lower than where I sold at the beginning of June.
Share prices are now trading below the exercise price of Sun CEO Scott McNealy's recent grant of 1.5 million options. His exercise price is $3.85. What does that mean? That the company sees its future as being worth more than the current share price. That's good to know. Nobody knows Sun's potential better than Sun itself.
There's no rush to get back in. Steady your hand and enjoy summer's sidelines.
As expected, Sun's shares have fallen back below $4. While I saw trouble ahead, I have to admit that I did not see anything quite as dramatic as Wednesday's 19% plunge on volume of 239 million shares, more than four times Sun's usual volume. SUNW closed at $3.85.
Now we face the question of whether or not it's time to get back in. Not yet for me. The news is bad, but it could get worse as other companies report and as this general rally faces proving points. The mood on the street could darken in August. If so, it seems that Sun would face an even angrier crowd that sifts through the earnings wreckage for signs of true survivors who will benefit from the big recovery -- whenever that materializes.
I would venture that a company reporting an 80% drop in profits and a 13% drop in revenue, as Sun just did, will not top the list of healthy buy-and-hold candidates for the recovery.
So let's sit tight. We've passed my first buy threshold, which was $4, but now I think we can get it even cheaper. Is $3 out of the question?
The market rose nicely on Friday and the Dow finished up for the week. However, tech stocks were down for the week. On Friday, Intel fell 1.1% and Sun gained just 0.7% despite a Nasdaq gain of 0.62% on the back of Microsoft's report of higher earnings. These stocks have had a nice run already. To push much higher than their recent highs would be pretty frothy.
The froth might come, but I don't want any of it. If the past three years have taught us anything, I hope it's that buying hopes and dreams can kill your hopes and dreams. Buying solid companies when they're cheap will build hopes and dreams.
Well, all those good feelings on Wall Street may have proven a bit premature after all. How uncharacteristic for the analysts to have gotten a little ahead of themselves, inflated a few earnings projections, dramatically called for the end of the bear market. In my years of watching this game, I've hardly ever known the analysts to be wrong.
Why just last week we were told that it was time to pile into stocks again. Never mind that the rally was rather well along its path and that a few cracks were showing in the earnings reports. Never mind that the great spending uptick everybody said would have begun to materialize by now has not or that the companies whom the spending was supposed to benefit said they don't see it happening. And please ignore the increasing unemployment rate.
As of April, May, and June, the arrows had turned nowhere but up in the land of technology, which is where I ply most of my investment dollars. I was called a fool to have sold my shares of Intel and Sun into the strength of this rising. That they had both reached P/E ratios greater than 50 was not relevant. The war was over, the second half was around the corner, and if we could get through summer without hitting that summer slump, fall would be gravy.
That has turned out to be a classic big IF. Stocks are going the other way. Intel is below $25 and Sun is around $4.50. The emotions now seem primed to switch from "I'd better get into this rally and make up for lost time" to "I'd better get out of this rally while the gettin's good".
The latter was my thought about a month ago.
I never get it perfectly right, but I generally get close. I bought Intel at $14.50 and Sun at several prices averaging to $2.90. I sold them both a little too soon at $21.50 and $5.10 respectively, and am keeping an eye on lower prices. I will buy both again, probably when the news is lamenting that technology just can't seem to get its traction. "Things looked good back in May, June, and early July," they'll write. "Intel even doubled its second quarter profits. Unfortunately, it wouldn't say that the economy was better. Then IBM refused to say that the economy was getting better. Now it looks to us that the economy isn't better."
It's not a bad idea to listen to the companies you intend to buy. When they say that the economy is not improving quickly and that spending is not picking up, they probably mean it.
All this madness is par for the course and a blessing, actually. It enables smart folks like you to chuckle and sell when the headlines are good, then chuckle and buy when the headlines are bad. When I bought Intel at $14.50, it was the end of the chip era -- according to the news. When I bought Sun at $2.90, it was the end of the workstation. When I sold each, it was the beginning of an Intel chip upgrade cycle and a Sun Linux revolution.
I think soon we'll be back to a hopeless future and tantalizing prices. And then we'll buy.
Those of you visiting here often know that I recommended Sun Microsystems last November when it was trading at around $2.50. It has since risen to well over $5, then settled back for a while and is now back over $5 again.
I sold my position at various prices over $5, not because I have lost faith in the stock, but because I think the price has gone up too quickly in this latest rally. I intend to use the profits I locked in to buy an even bigger position in Sun when the stock settles to a lower price in the next down cycle.
I know what you want to know: when will that down cycle begin? Beats me. Some say now. Some say in August. Some say it won't. All I know is that Sun is too expensive now and that when life gives me a chance to double my money in the short term, I should take it.
I'm betting that I'll be able to buy in again at or below $4. In sum, I am short-term bearish but long-term bullish on Sun.
BusinessWeek Online published a good article today titled The Tech Rally Is No Freak Performance. It gives an overview of how the prospects for tech are improving and how those improvements will benefit now lean-and-mean tech companies. Overhead in tech land has been slashed to the bone so that any uptick in profits will go straight to the bottom line.
All of that should make tech investing like shooting fish in a barrel again, right? Wrong. That's where the article shines. When stocks are up some 80% in three months -- think Sun -- the improvement in tech land would need to be pretty phenomenal to support the price. The improvement is good but it's not that good. The article specifically mentions Sun as a stock that's too pricey these days.
I'll let you know when I buy Sun again, and at what price. If you want to know by email, type your address into the field at the top of this page.
This page gets woefully out of date at times. To help remedy that, I decided to try Blogger.
You can still find larger features in my articles area from the main menu bar. I'll use this area for short, timely commentary. Anything that runs longer will become an article as it always did before. The beauty of Blogger is that it removes all the time-consuming HTML work involved in creating separate article pages linked from the main article page, and then duplicating the content on the home page, etc. If you don't have a website, you don't have any idea what I'm talking about and you should be thankful for that.
Now onto some commentary.
If you're dying to get your money into this market, you're a textbook case of whipsaw syndrome. The time to be dying to get into the market was back in February and March (as I wrote then). The war bounce is getting long in the tooth. Now it's time to be selective and skeptical.
Of course, if you ever took my advice to invest as if you're buying the company then all this timing stuff is for the birds. But nobody ever takes that advice seriously. If they did, there would be no investment media. Truthfully, there is nothing helpful to write about the market on a daily basis. Only traders need that frequency of information and, as countless studies have proven, the vast majority of people lose money when trading.
I know, this kind of thinking is stuffy and you know somebody who made a killing on UTStarcom and has a system. Heard it all before. Meanwhile, the world's most successful investor, Warren Buffett, probably has no idea what the market did yesterday.
