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Stay on top of the market with Prudential Securities and Dow Jones. Click on the url below to learn how you can receive a 1-year subscription to The Wall Street Journal or BARRON'S, FREE! http://www.money.com/prudentialsecurities ***************************************************************** SIVY ON STOCKS from money.com December 11, 2000 Bad news bulls The news may be rotten for semiconductor stocks, but investors are betting on a rebound for leaders like Intel. By Michael Sivy Over the past few months, I've been warning readers that the technology sector remains in a broad downtrend that could last well into next year. Nonetheless, when tech stocks have been beaten down badly enough, shares of the strongest companies can rebound even in the face of continuing bad news, provided their long-term prospects are good enough. Exactly that sort of bad-news rebound has occurred for Applied Materials, the leading maker of semiconductor manufacturing equipment. Last week I wrote that the battered stock would remain volatile and could face a further decline of 10 percent to 15 percent. But I concluded that the shares were so cheap at $38.50 that the upside was 10 times as great as the downside. That proved true a lot faster than I expected. In the five trading days since that column ran, the stock has jumped 32 percent to nearly $51 a share. Admittedly, my good timing was largely luck, but the power of Applied Materials' comeback is a signal that other leading semiconductor stocks also may have fallen too far. As a rule, if you're considering stocks in the midst of bad news, it's smartest to stick with industry giants that have bullet-proof balance sheets. You can be confident that they'll ride out whatever bad conditions lie ahead, and they may even benefit as smaller competitors are forced to give up market share. On that basis, I'd certainly be inclined to look at Intel. Though it's the world's leading chipmaker, with $34 billion in annual sales, Intel has spent the year fouling up. Among the more spectacular errors, the company ran short of capacity because it underestimated demand last year and cut back capital spending. In addition, glitches were discovered last summer in Intel's turbocharged Pentium III, and many of the chips had to be recalled. Frankly, none of those failures will have much long-term impact. Intel remains the industry's 800-pound gorilla and long-term earnings growth is projected at more than 20 percent a year. Most analysts see continuing weakness in the chip market for the next six months, but see the cycle swinging up by late next year. In September, Intel warned that third-quarter earnings would be lousy, and the stock fell by $13 to $48 a share. At the time, I wrote that the stock was down to buyable levels but that it wouldn't rebound right away. Over the next three months, Intel sank to less than $32 amid a general selloff in technology. But after announcing on Friday that fourth-quarter results would be disappointing because of soft personal-computer sales, Intel rallied. On Monday, investors followed through by bidding the stock up another $3.50 to $37.50. Investors are clearly betting that the worst is over. And with the stock only about 20 percent above its lows (and 50 percent off its highs), I think it makes sense to get on board. After revising their 2001 estimates downward, analysts expect Intel to earn about $1.50 a share next year. At the current share price, that's a 25 P/E -- cheap for a 20 percent core growth rate. If Intel is missing from your portfolio, this may well be your best opportunity for years to come. ============================= UPCOMING CHAT: Monday, December 11 at 8pm ET, 5pm PT Money.com presents Third Avenue Value fund manager Martin Whitman. Join us for a discussion of how to pick the best value stocks, and find out why Whitman's fund has received top ratings by Morningstar.com. http://www.money.com/chat/ AOL keyword: LIVE CHAT TRANSCRIPT MONEY's Laura Lallos tells you how to select the best mutual funds for you, and how to protect your investments in a volatile market. http://www.money.com/chat/2000/001208a.html ============================= ### Post your comments on Michael's column at: http://www.money.com/depts/investing/sivy/index.html To subscribe or unsubscribe to Sivy on Stocks, go to: http://www.money.com/email/ Earning Releases and Calls For the latest corporate earnings releases and online conference calls click on: http://money.ccbn.com * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Special Internet Offer!!! Sign up for a RISK-FREE issue of MONEY MAGAZINE at http://www.money.com/subscribe2 Or if you prefer call our toll-free number 1-800-544-4594 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * We may, from time to time, contact you with offers for Time Inc. products and services which we think may be of interest to you. If you would prefer us not to contact you in this manner, AND YOU DID NOT INDICATE THIS PREFERENCE AT THE TIME YOU SIGNED UP for the Sivy on Stocks online newsletter or any other Time Inc. online newsletters, please let us know by sending us an e-mail at <no_solicit@money.com<. Additionally, from time to time we may provide your e-mail address to carefully chosen companies whose offers we think may be of interest to you. If you would prefer us not use your e-mail address in this manner, AND YOU DID NOT INDICATE THIS PREFERENCE AT THE TIME YOU SIGNED UP for the Sivy on Stocks online newsletter or any other Time Inc. online newsletter, please let us know by e-mailing us at <no_transfer@money.com<.
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