This weekend we ran the Alert HQ process and generated the list of Trend Leaders. These stocks and ETFs are distinguished by strong recent performance. Using daily data, we look for stocks that are over their 50-day moving average. We then use three different technical indicators to determine trend: Aroon, DMI and MACD. All three indicators must be registering strong readings in order for a stock or ETF to make the list of Trend Leaders.
Below we present those stocks from the Tech sector that made this week's list. Data is as of the close on Friday, 3/20/09.
All of these stocks have been rolling up some very nice gains for a number of weeks now. In looking at this list, however, I get the impression we are seeing some froth. What does that say about the current rally?
We already know that the technical signs indicate strong up-trends for these stocks. It's the fundamentals that are worrisome. The PE ratios range from fair to excessive and some of the stocks do not have positive earnings at all. Price-to-Sales, Price-to-Book and PEG ratios also range from fair to excessive.
Looking at a few of the stocks on this list, we can see there are certainly some good companies. BMC, for example, is benefiting from the recently announced partnership with Cisco Systems as Cisco begins to make its move into data center servers and data center management. Still, with a PE in the 20's, Price-to-Sales over 3 and Price-to-Book over 6, the stock is not cheap.
The situation with Iron Mountain is similar. The firm benefits because, by law, many companies are required to retain data for seven years or more. Under this scenario, Iron Mountain earnings could be expected to hold up reasonably well during a downturn. But a PE over 50? This stock is no bargain.
As we go down the list, we see Perot Systems looking reasonably attractive on a valuation basis but it is immediately followed by Rackspace Hosting at a PE over 36. In general, this pattern repeats with stocks showing decent value alternating with rather speculative and seemingly quite expensive stocks.
Many analysts have been saying stocks are cheap. Based on this evaluation, they are saying it is safe to buy again. Reviewing this list of favored stocks doesn't confirm the "stocks are cheap" thesis. Given that we are still much closer to the 52-week lows than we are to 52-week highs, I would think that more of these stocks would be exhibiting financial ratios that would indicate more attractive valuations.
If these stocks comprise the tech leadership, this rally may need to pause and wait for earnings to catch up with stock prices.
Disclosure: none
Below we present those stocks from the Tech sector that made this week's list. Data is as of the close on Friday, 3/20/09.
| Symbol | Name | Last Price | Market Cap | PE Ratio | Price to Sales | Price to Book | PEG Ratio |
|---|---|---|---|---|---|---|---|
| BMC | BMC SOFTWARE, INC. | 30.78 | $5,683,000,000 | 24.19 | 3.14 | 6.02 | 1.18 |
| IRM | IRON MOUNTAIN INC. | 21.16 | $4,274,000,000 | 53.69 | 1.43 | 2.43 | 1.41 |
| KEI | KEITHLEY INSTRUMENTS | 3.19 | $49,800,000 | N/A | 0.32 | 0.66 | N/A |
| NZ | NETEZZA CORPORATION | 6.55 | $390,900,000 | 13.43 | 2.14 | 2.28 | 1.53 |
| PER | PEROT SYSTEMS CORPORATION | 12.68 | $1,515,000,000 | 13.34 | 0.55 | 1.17 | 0.89 |
| RAX | RACKSPACE HOSTING, INC. | 6.25 | $734,800,000 | 36.49 | 1.52 | 2.98 | 2.02 |
| SY | SYBASE, INC. | 29.61 | $2,399,000,000 | 18.23 | 2.14 | 2.87 | 0.91 |
| AMZN | Amazon.com, Inc. | 69.96 | $29,984,000,000 | 46.95 | 1.57 | 11.23 | 2.11 |
| BBOX | Black Box Corporation | 22.98 | $402,900,000 | 8.64 | 0.39 | 0.61 | N/A |
| CAVM | Cavium Networks, Inc. | 11.77 | $485,100,000 | 336.86 | 5.61 | 3.78 | 13.97 |
| CERN | Cerner Corporation | 42.97 | $3,452,000,000 | 19.66 | 2.13 | 2.72 | 0.96 |
| CIEN | CIENA Corporation | 6.75 | $612,000,000 | N/A | 0.78 | 0.67 | N/A |
| CREE | Cree, Inc. | 22.98 | $2,034,000,000 | 70.46 | 3.92 | 1.82 | 2.06 |
| DIOD | Diodes Incorporated | 10.16 | $420,600,000 | 11.5 | 1.01 | 1.17 | N/A |
| EPIC | Epicor Software Corporation | 3.52 | $210,400,000 | 215.29 | 0.45 | 0.79 | 0.54 |
| MCHP | Microchip Technology Incorporated | 20.18 | $3,675,000,000 | 12.87 | 3.83 | 3.72 | 2.17 |
| NOVL | Novell, Inc. | 4.12 | $1,419,000,000 | N/A | 1.59 | 1.36 | 1.24 |
| QLGC | QLogic Corporation | 11.22 | $1,360,000,000 | 13.22 | 2.06 | 2.17 | 0.9 |
| QSFT | Quest Software, Inc. | 12.14 | $1,149,000,000 | 19.52 | 1.61 | 1.35 | 0.96 |
| RADS | Radiant Systems, Inc. | 3.63 | $117,800,000 | 11.97 | 0.42 | 0.91 | 0.46 |
| SWKS | Skyworks Solutions, Inc. | 7.69 | $1,273,000,000 | 11.84 | 1.57 | 1.39 | 1.07 |
| SMSI | Smith Micro Software, Inc. | 4.99 | $156,700,000 | N/A | 1.67 | 0.99 | 0.34 |
| TATTF | TAT Technologies Ltd. | 5.44 | $35,600,000 | 8.22 | 0.34 | 0.46 | N/A |
| PANL | Universal Display Corporation | 7.51 | $272,700,000 | N/A | 25.05 | 3.6 | N/A |
| UEIC | Universal Electronics Inc. | 16.58 | $225,600,000 | 15.72 | 0.81 | 1.53 | 1.3 |
All of these stocks have been rolling up some very nice gains for a number of weeks now. In looking at this list, however, I get the impression we are seeing some froth. What does that say about the current rally?
We already know that the technical signs indicate strong up-trends for these stocks. It's the fundamentals that are worrisome. The PE ratios range from fair to excessive and some of the stocks do not have positive earnings at all. Price-to-Sales, Price-to-Book and PEG ratios also range from fair to excessive.
Looking at a few of the stocks on this list, we can see there are certainly some good companies. BMC, for example, is benefiting from the recently announced partnership with Cisco Systems as Cisco begins to make its move into data center servers and data center management. Still, with a PE in the 20's, Price-to-Sales over 3 and Price-to-Book over 6, the stock is not cheap.
The situation with Iron Mountain is similar. The firm benefits because, by law, many companies are required to retain data for seven years or more. Under this scenario, Iron Mountain earnings could be expected to hold up reasonably well during a downturn. But a PE over 50? This stock is no bargain.
As we go down the list, we see Perot Systems looking reasonably attractive on a valuation basis but it is immediately followed by Rackspace Hosting at a PE over 36. In general, this pattern repeats with stocks showing decent value alternating with rather speculative and seemingly quite expensive stocks.
Many analysts have been saying stocks are cheap. Based on this evaluation, they are saying it is safe to buy again. Reviewing this list of favored stocks doesn't confirm the "stocks are cheap" thesis. Given that we are still much closer to the 52-week lows than we are to 52-week highs, I would think that more of these stocks would be exhibiting financial ratios that would indicate more attractive valuations.
If these stocks comprise the tech leadership, this rally may need to pause and wait for earnings to catch up with stock prices.
Disclosure: none
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