NEW YORK (CNN/Money) -
Those investors still brave enough to check their portfolios have no doubt noticed that a disconcerting number of tech names have fallen into the single digits -- and can't get up.
How bad is it? Take a look at the Nasdaq 100. There are 18 stocks trading under $10 a share, and another dozen or so within spitting distance of the dreaded single digits.
Worldcom and Adelphia Communications are both under $2. Ericsson, i2 and JDS Uniphase are trading for less than $5. The single-digit flu isn't confined to the Nasdaq, of course -- the Big Board boasts Gateway, Corning and Qwest, among others.
Sure, we've gotten used to the fact that dot-bombs like Infospace and CMGI have cratered; we've come to accept the carnage in telecom and optical networking. Heck, Lucent (LU: Research, Estimates) has been in the single-digits for more than a year.
But it's still a little startling to see stocks like Oracle (ORCL: down $0.26 to $8.68, Research, Estimates), Sun Microsystems (SUNW: down $0.13 to $6.80, Research, Estimates) and EMC (EMC: down $0.18 to $7.54, Research, Estimates) in the club. Once ranked among the "four horsemen of the Internet" -- the fourth being Cisco (CSCO: down $0.41 to $15.97, Research, Estimates) -- these three ghost riders seem to have fallen off their horses.
Is the $10 mark just psychological?
What does it all mean? The absolute price of a stock is, of course, largely arbitrary. Most companies, with the notable exception of Berkshire Hathaway, split their stocks after substantial runups in an effort to keep their share prices somewhere in the meaty middle of the double digits.
Some companies split their stocks more often than others, of course. That's why, judged by conventional metrics like price-to-earnings and price-to-sales ratios, Cisco at $16 a share is a more richly valued stock than IBM (IBM: down $0.48 to $81.60, Research, Estimates) at $82.
Still, a too-low stock price carries an undeniable stigma, and almost always suggests that a company has fallen far short of expectations.
As a result, some investors (and many mutual fund managers) shun single digit stocks as a matter of principle. And a recent Merrill Lynch study of single-digit tech stocks from 1987 on suggests they might be right to do so: only 3.4 percent of the group were able to get their stock price over $15 within a year.
Nevertheless, I have to think the prospects are little sunnier than that for at least some single digit techs. What happens to truly distressed names like Lucent and Qwest is anyone's guess. (I guess I jumped the gun when I suggested Qwest as a value play back in March. Then, it was trading for nearly $9 a share; it's a $5 stock today.)
Oracle and Sun, however, are in the club only because both initiated splits so late in 2000, after the tech collapse was gaining momentum.
Oracle was trading at only $63 when it split its stock in October of 2000 -- its second split that year. Even at a current $8.77 a share, Oracle boasts a market cap of nearly $50 billion.
Both Oracle and Sun face enormous hurdles. But I hardly think they're doomed.
But bargain hunters beware: expectations surrounding tech stocks were so wildly inflated during the boom years that even now a number of single-digit tech names don't look particularly cheap.
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Applied Micro Circuits (AMCC: down $0.26 to $6.28, Research, Estimates) may be trading for less than $6.50 a share, down 70 percent from a year ago, but even that seemingly low price values the currently unprofitable communications chipmaker at 8 times sales. Rival Vitesse Semiconductor (VTSS: down $0.21 to $5.58, Research, Estimates), at $5.60 a share (down more than 80 percent in the past year), goes for more than 6 times sales.
That stocks can fall so precipitously -- yet still be so richly valued -- is yet another sobering reminder of just how crazily over-inflated tech stocks got.
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