Don't believe the rally
The economy is on a roll and stocks are racing -- isn't anybody reading the fine print?
March 4, 2002: 6:20 p.m. ET
By Adam Lashinsky
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SAN FRANCISCO (CNN/Money) - Investors want to believe, and why not? Believing felt so good for so long.
Want proof that hope springs eternal? Oracle, a bellwether technology company, reported late Friday in cryptic and minimalist language that its quarterly results will be below Wall Street's expectations. (Hard and fast rule: Always fear the 5:11 p.m., Friday afternoon press release.)
Oracle attributes the shortfall to weakness in Asia, and predictably, its stock cratered Monday, falling $2.32, or 15 percent, to $13.67.
A few weeks ago, Oracle's announcement might have sent the jittery market into a tailspin. But the market rallied, with the Nasdaq ending up 3.1 percent. Non-newsmaking leaders like Cisco (up 10 percent), Ebay (up 8 percent) and Micron Technology (up 7 percent) outpaced the market.
Why shrug off Oracle? Mr. Market and the conventional wisdom had an answer: Manugistics, a supplier of software that helps manufacturers communicate with its suppliers. Manugistics said business for the fourth quarter was better than it expected, and it is calling back some of its furloughed workers. Hurray!
Small problem, with the emphasis on small: Annual revenues at Manugistics are in the $300 million range. Hey, not bad for a small, growing company. But when looking for a barometer on the economy, might I suggest paying attention to a slightly larger company -- like, say, Oracle, which has some $10 billion in annual revenues.
Remember, technology isn't sold in some kind of vacuum. It's a productivity tool for managers of the industrial economy. And in the words of Needham & Co. analyst Richard Davis, Jr., in a note Monday morning to his clients, "Information technology spending is still in a funk."
That's right. The Fortune 1000 continues to digest all the technology it purchased over the past 10 years, when it binged on the new new thing. There may well be a nascent recovery in the overall economy, but tech is about the last place one should look for stock gains.
Instead, it's likely investors and tech companies alike got a little ahead of themselves in banking on improved results. That's why Oracle could be, well, an oracle of the near future, as it has many times before. "As some may remember, it was Oracle that led the shortfall hit parade with last year's shortfall for February," reminds Needham's Davis.
Oracle reports its earnings March 14. Other large and small tech companies will be filing their newly detailed annual reports with the Securities and Exchange Commission in coming days. Do you really believe Oracle's just a quirky tech company experiencing a unique hiccup? If so, then go ahead and buy into this rally. But do it with both eyes open.
San Francisco Bay area locals: See Adam Wednesday night, March 6, 2002 as he moderates a panel, "IPO: The New Realities." For information, click here.
Send e-mail to Adam at adam_lashinsky@timeinc.com.
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