Hot or not?
This week we rate EMC, Intel, Oracle, JDS Uniphase and eBay.
March 4, 2002: 10:38 a.m. ET
By Staff Writer Paul R. La Monica
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NEW YORK (CNN/Money) - Last week we judged whether five prominent tech stocks -- AOL Time Warner, Microsoft, Dell, Cisco Systems and Sun Microsystems -- were "Hot" or "Not".
Readers had plenty to say about our verdicts (see comments below). They also submitted suggestions for other stocks they would like to see judged -- here they are.
EMC Time was, few could see how demand for storage solutions would ever slow. With Internet use mounting, and more bits and bytes to house, corporations would have to keep spending to store it all.
Now we know better. The big capital-spending slowdown that has plagued telecom equipment companies has also hit the storage sector, and EMC (EMC: up $0.38 to $11.80, Research, Estimates), the storage king, is hovering near its 52-week low.
And there's no near-term recovery in sight. Analysts expect revenue to decline 39.8 percent and 25 percent in the first and second quarters, respectively. Analysts also expect EMC to post slight losses -- 3 cents a share in the first quarter and a penny a share in the second quarter.
Is there hope for the long term? Sure. Earnings estimates are on the rise, with the forecast for 2003 jumping more than 30 percent in the past two months alone. But the stock is still trading at more than 45 times 2003 earnings estimates (not exactly cheap), and what's more, EMC is facing tougher competition these days from the likes of Hitachi and Dell.
Intel Semiconductor companies are typically the first to run into trouble during a tech slowdown and then the first to emerge from it. Intel, for example, reported signs of a revenue shortfall back in September 2000, several months before software, hardware and telecom companies started to issue earnings warnings.
But now Intel is back in the groove while most of tech is still suffering. The stock has surged nearly 60 percent since the market's low point on Sept. 21. And there are signs the sector could strengthen more. Chip-equipment firms Applied Materials and Novellus recently issued stronger outlooks for the first quarter, and Texas Instruments and Advanced Micro Devices affirmed their first-quarter targets as well.
To be sure, Intel (INTC: up $0.23 to $31.21, Research, Estimates) is expected to post an earnings decline in the first quarter. But this could very well mark the bottom: For the year, Intel's earnings are expected to increase 30 percent.
Oracle CEO Larry Ellison may be the fifth wealthiest man in the world according to Forbes magazine's latest rankings, but his company is limping along a little too slowly at the moment.
On Friday, Oracle announced that earnings for its fiscal third quarter (which ended on Feb. 28) would come in a penny per share lower than it had forecast in January. The company blamed lackluster sales in Asia for the shortfall.
Another problem is that SAP and Siebel have emerged as tough competitors in the market for business software. Even though Oracle (ORCL: down $2.64 to $13.35, Research, Estimates) is the cheapest of the three -- trading at 37 times earnings estimates for fiscal 2002 (ending in May) compared with a P/E of 45 for SAP and 47 for Siebel -- its growth rate is the lowest.
Prior to its earnings warning, Oracle's earnings for fiscal 2002 were only expected to be 2 percent higher, and 2003 didn't look like it will be a gangbuster year either, with estimates of only 13 percent growth. But now, analysts will likely cut their targets for fiscal 2002 and might have to lower numbers for 2003 as well.
SAP's earnings, meanwhile, are expected to increase 33 percent this year and 28 percent in 2003, while analysts are predicting growth rates of 20 percent and 23 percent for Siebel.
Sorry Larry. You're not hot. And archrival Bill Gates -- No. 1 on the Forbes list -- is still richer than you.
JDS Uniphase Hmmm. Even with the stock hovering around its 52-week low of $4.74, there is still reason to believe that JDS Uniphase (JDSU: up $0.37 to $5.35, Research, Estimates) could head lower in the short term. As we pointed out last week, big telecom carriers have cut back their spending and that has hurt networking equipment companies like Cisco, Lucent, Nortel and Alcatel. Well, guess who is a major supplier of amplifiers, pump lasers and other optical components to the big networking companies: JDS.
Analysts expect JDS to lose money in this fiscal year, which ends in June, and revenues are expected to plummet a staggering 64 percent from last year's levels. In fiscal 2003, the company should barely eke out a profit (analysts are expecting earnings of only a penny per share...so don't even ask what the stock's P/E is). But for a company that trades at about $5 a share, it still is quite large, with a market value of nearly $7.6 billion, or more than 5.4 times fiscal 2003 revenue estimates.
To put that in comparison, Cisco's price/sales ratio is 4.9 times. And even though we still wouldn't call Cisco hot, it's tough to argue that JDS deserves a premium valuation.
eBay It's safe to say eBay (EBAY: up $3.49 to $58.35, Research, Estimates) is the Alex Rodriguez of the technology sector (excuse the baseball reference but spring training has begun, after all.)
The thought of any baseball player making $25 million a year sounds preposterous. But the Texas Rangers shortstop, only 26, has been getting better every year and is arguably the best all-around offensive player in baseball. So what does this have to do with eBay?
The online auctioneer's stock more than doubled in 2001 and trades at 74 times 2002 earnings estimates. Any sane investor has to wonder if that isn't just a little overpriced. But the company, like A-Rod, has been a model of consistency since it went public in 1998 (even back then it was one of the precious few Internet companies that was actually profitable).
Earnings increased by 133 percent last year, are expected to increase another 53 percent this year and 49 percent in 2003.
eBay dominates its market and unlike many other e-commerce companies, it faces very little competition from established retail giants. It's hard to get much hotter than that.
Last week's "Not" rating on Cisco drew the most controversy. Some readers agreed with our cool stance on the networking equipment sector. "Telecom is as sexy as seeing your grandmother get out of the shower," said Todd Craw, a reader who used to work for Foundry Networks.
But numerous others angrily denounced our viewpoint. One reader, identified only as Jamie, wrote, "I think you are one of the biggest morons there is. Look at Cisco's margins and the operating cash flow. No one can post those numbers."
Jamie was angry enough to follow that e-mail with this one just two minutes later: "Like I said before, you have it all wrong. Idiot."
Anyway, do you agree with our take on these five tech stocks? E-mail paul.lamonica@turner.com. Also feel free to let us know about other stocks, funds or even people that you'd like to see rated hot or not. 
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