Anybody remember 1999? The year of the flying pig? The tech bubble that would later crash in 2000?
I didn't think so.
If you've been riding some of those sexy tech plays with price/earnings multiples into the stratosphere, it might be a good time to get nostalgic.
To jar your memory, forget the neighbourhood librarian. Go to a cool search engine.
May we suggest Google (Nasdaq:GOOG), which is so cool its stock trades at $177 US per share with a price/earnings multiple of 194 (no, we're not making this up).
Search TECH BUBBLE. Google will instantly unearth 1,950,000 bedtime stories for your reading pleasure.
If you think any stock should trade at 194 times earnings, read every story.
Of course, this is not 1999.
Companies such as Research In Motion (TSX:RIM) that have run back into the stratosphere for a second time are now real companies with real earnings.
And Nortel Networks (TSX:NT), poster pig for the tech crash, has been sitting this one out, quietly cheering from the sidelines while trying to figure out which beancounter sent the adding machine out for repair. Yet, as I watched RIM shares crash through a key technical support level - on a day when one analyst was upgrading the shares with a buy recommendation - I couldn't help thinking about the carnage of the tech crash that started in earnest five years ago in March.
It does feel a bit like 1999, the go-go days of Internet mania when investment banking promoters masquerading as research analysts pumped the Internet stocks to the high heavens and then unabashedly continued cheering many happy investors into the poorhouse.
I vividly remember my pal Bre-Xer kindly alerting me to a hot buying opportunity in 2000. He breathlessly informed me that Nortel stock had "cheapened" (his word, not mine) to the $90 range, well off the all-time high of $124.
Of course, it turned out to be a falling knife. Within a year, Nortel was trading in the $10 range and the stock, recently at $3.75, would eventually fall below $1.
Don't look now but RIM, which has succeeded Nortel as Canada's tech darling, has recently shown an unsettling 25-per-cent decline and its chart is enough to make a grown technical analyst weep.
Of course, RIM, the maker of the Blackberry handheld device used for nifty things like telling your broker to go to hell, has plenty of company with many of last year's big tech movers plunging in recent weeks.
EBay (Nasdaq:EBAY) recently sent shockwaves through the market when its shares took a 20-per-cent haircut in two days after the online auctioneer missed an earnings forecast by a penny.
Even the mighty Google has recently toppled from its lofty perch at $205. Don't believe it? Check with Google, which will confirm this by spitting out 31,000 items under GOOGLE TANKS.
If this reality is depressing you, there is a surefire cure. Just read some of those rosy tech analyst reports and you'll be feeling all warm and fuzzy again about the outlook for the tech sector.
According to Thomson First Call, none of the 27 analysts who cover RIM have a sell recommendation on the stock. There are 12 buy recommendations and 19 hold recommendations.
Since 1999, Martha Stewart has been jailed for lying about a stock sale, bubbly Internet analyst Henry Blodgett has been spanked off Wall Street, a few minor reforms have been instituted in brokerage research departments and Wall Street cop Eliott Spitzer, the New York attorney general, has become a household name.
But, in the end, not all that much has changed.
Memories are failing.
The tech investor still suffers from amnesia and the tech analyst still can't remember how to spell sell.
They make a nice couple, no?
* MUM'S THE WORD: Usually, you can't get the fund managers to stop talking. The trouble with Wayne Deans is that you can't get him to start talking.
"There's just not much to talk about," quips Deans, president of Vancouver-based Deans Knight Capital Management and one of Canada's hottest small-cap fund managers.
In recent years, Deans has shared his top stock picks and market views with Edge readers - but now he's clamming up, which may speak volumes about how thin the pickings have become, particularly in the small-cap sector.
"We're here to make money, not share our spoils," jokes the Lone Ranger of money managers. Deans manages the Northwest Specialty Equity Fund, which boasts a five-year annualized return of 22.3 per cent on the strength of skyrocketing oil and base metals prices and companies such as Cinram International that came out of nowhere to become market superstars.
In December of 2001, Deans made Cinram (TSX:CRW) one of his top three picks in the Edge's Pro's 3 Stars feature, long before the stock was on the radar screens of most fund managers. This manufacturer of CDs was then trading at $4.20. Within 18 months, Bay Street had discovered it and the stock ran as high as $29.
Five years ago, while all around him were buying those high-tech buggy whips, Deans was quietly buying an obscure nickel producer named LionOre Mining (TSX:LIM) at 32 cents for his fund. LionOre, currently one of the top holdings in the fund with a five-per-cent weighting, has been his ace in the hole, having peaked at $8.50.
These days, Deans talks in the past and present but not the future. He won't even drop a hint about how he may be planning to remodel a fund that has gotten fat on oil and gas companies (the current weighting of oil and gas equities is around 28 per cent).
Although based in Vancouver, Deans has had an impressive pipeline to the Calgary oilpatch and was one of the first fund managers to jump on the Peyto Energy Trust story before it was the talk of the industry. He started buying Peyto (TSX:PEY.UN) in the $3 range long before it converted to an income trust. Now at $49, Peyto is one of the fund's top holdings.
"Oil's attracting too much attention," says Deans. "The easy dough's been made. The same applies to the base metals producers. The time to have bought a good quality, low-cost nickel producer like LionOre was when nickel was trading at $1.75 a pound, not $6.50 as it is today. LionOre is still a terrific company, but we're not going to make 10 to 20 times our money. Those kinds of opportunities are not available today at the same levels (upside) that we saw five years ago.
"There are very few good ideas we're working on, so the few ideas we have we don't want to make public. We've closed off our mutual funds (he also manages the TDK Resource fund) from new money. If we talk, other people will know about our ideas."
* SAGE WORDS: "The objective is not to buy low and sell high, but to buy high and sell higher. Always remember that the price of sugar once fell from $1.25 a pound to two cents a pound and seemed 'cheap' many times along the way."
- Dennis Gartman, renowned trader and editor of the Gartman Letter.
Hot Stock*
Speedware Corp.
TSX:SPW $3.86 Up $1.21 (+45.7%) on 2.7 million shares (based on weekly gain for Canadian stocks over $1, Jan. 20-27 inclusive) You need to dig awfully deep these days to find Canadian small-cap technology success stories and you're going to have to dig even deeper now. Quebec-based software firm Speedware is being taken out by Texas-based Activant Solutions, at an acquisition price of $3.91 per share. Fourteen months ago, small-cap manager Martin Ferguson of Mawer Investment Management pitched Speedware as one of his top picks at $2.65 to Edge readers in Pro's 3 Stars.
*Canadian stocks over $1.
Cold Stock*
Sierra Wireless TSX:SW $11.10 Down $7.18 (-39.3%) on 8 million shares (based on weekly loss for Canadian stocks over $1, Jan. 20-27 inclusive) It's almost enough to make one hit Warren Buffett up for a good "wire" stock. Too uncool? Well, check out the latest wireless play to fall out of bed and drag some others down with it. Richmond, B.C.-based wireless modem and phonemaker Sierra released an ugly fourth quarter and warned that sales for the current quarter could be down as much as 67 per cent! On the news, Sierra shares, which traded at $60 10 months ago, tanked 38.5 per cent on one-day volume of 5.8 million shares.
*Canadian stocks over $1.
(Gyle Konotopetz can be reached at gyle@businessedge.ca)
