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The turmoil in technology stocks continues, so what are some of the tech warriors doing? Several of these hardy investors say they suffer the beating, buy their favorites at opportunistic price levels, and wait, patiently, for the market's turnaround.
That's not easy to do, but it's the only way to win, insists Jerry Apodaca, who heads Apodaca Investment Group in San Francisco. Apodaca invests only in tech companies with new and emerging technologies and whose growth in sales and earnings are accelerating.
"It is very painful," says Apodaca, in describing the catastrophic losses that some stocks in his portfolio are taking.
"LOOK LIKE DEATH."
Apodaca's Small-Cap Growth Fund racked up a stunning 356.5% gain last year and posted a strong 59.9% in the first quarter of 2000. But much of that advance dissipated in the past two months, as the Nasdaq composite index dived to 3205 on May 26.
Many tech stocks "look like death" now, says Apodaca. But in six to nine months, when he expects the market to rebound, "you will realize that these were the stocks to own," he argues. "The risk today is in not owning the right tech stocks, those that dominate their space in that their technologies are the newest things that are or will be in strong demand," he says.
He expects that Fed Reserve Board Chairman Alan Greenspan will have completed raising interest rates by the summer, or the onset of autumn at the latest.
TWO FAVES.
Meantime, Apodaca has been buying more shares of some stocks that he already owns at prices he thinks are already at or near their bottom. Most techs in his portfolio were small-caps when he first bought them. But they have since become far larger and are now covered by Standard & Poor's Corp. analysts.
Two that he has been recently scooping up: Mercury Interactive (MERQ), which has plunged from 132 a share on Mar. 3, to 71 7/8 by May 26, and PMC-Sierra (PMCS), which has plummeted from 245 on Mar. 10, to 134 on May 26.
Mercury is the leading provider of automated tools for testing and monitoring business-sensitive Internet applications. The products identify Web-site performance problems with greater accuracy, speed, and efficiency than traditional methods, explains S&P analyst Mark Basham.
EARLY BUYER.
PMC-Sierra, on the other hand, makes networking semiconductor devices used in high-speed transmission and networking systems -- mainly for "restructuring global and data communications infrastructure," says analyst Stephen Tekirian, who follows the company at S&P.
Apodaca says he's under no pressure to grab more shares of either stock, since he had purchased the bulk of his MERQ and PMCS stakes early in 1997. Mercury was then selling at just $7 1/2 a share, and PMC-Sierra at 8.
But these stocks are now selling at such irresistable prices compared to their recent highs, he says, that he bought more shares last week, when Mercury was 78 and PMC-Sierra was 163. MERQ is currently trading around 79 and PMCS around 147.
No matter, says Apodaca, who is convinced that they'll go back to their old highs within a year -- at worst. When they start turning back up, the rise will be so rapid that it may be too late to catch them again at these low levels, he argues.
SHINY EARNINGS?
Fundamentally, Apodaca thinks technology companies will continue to do very well, as Corporate America keeps building out its businesses and spends more on infrastructure to improve technologies in the Internet world.
Earnings growth at both Mercury and PMC-Sierra are expected to shine. Mercury should earn 60 cents a share in 2000 and 83 cents in 2001, up from last year's 39 cents, estimates John McPeake of Prudential Securities, who rates the stock a strong buy.
PMC-Sierra is estimated to earn 79 cents a share this year and $1.11 next, up from last year's 59 cents, says Roberston Stephens analyst Arun Veerappan, who also carries a strong buy rating on the stock. Apodaca is one pro who wouldn't argue with either of those ratings.
Senior Writer Marcial has been writing Business Week's Inside Wall Street column for 18 years. Catch his online column every Tuesday afternoon
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