Steve Zito, Wharton School BS Econ, MS Fin, HTML Writers Guild
uses economic and technical analysis to forecast the direction of the stock market. The views in this newsletter are opinions only, and should not be solely relied on for your investment decisions.
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NASDAQ COMPOSITE
INDEX closed 1295.30

Sept. 9, 2002. Microsoft and Oracle

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Go To Page 1 On Sept. 6, Nasdaq Composite closed at 1295.30 +44.30. Nasdaq fell 19.55 (-1.5%) since Sept. 2 page. Compare moves in stock sectors to see where mutual funds put new money into play. Nasdaq 100, largest capitalization tech stocks, moved 1.0% higher than broad Nasdaq Composite containing over 4,000 issues. Why an appetite by fund managers for the 100 large well-known names like Microsoft and Oracle? Safety in earning forecasts. Actual profits for these software companies have come within 2 cents of analysts' mean expectations. Oracle's products, customers are established, verifiable by analysts, profit margins do not change from one quarter to the next. Microsoft with its Windows monopoly is a cash cow piling up receipts on sales of a unique product which only costs a few pennies for the diskettes and a box in which it is shipped. Microsoft sells X-box game consoles but is firmly in third place to Sony and Nintendo. Microsoft competes against AOL and Yahoo with Microsoft Network but I use all 3, and MSN has functionality and merit of current Nasdaq 100 TV ads with Microsoft President Steve Ballmer talking about his mother in them. Oracle has been trying to convince analysts its application product sales are growing to complement the bulk of non-growing revenues from database software. Every quarter, Oracle stock spurts 2 weeks before quarter ends on hopes that application sales will justify R&D. Larry Ellison gave a speech at the Wharton School in August, and Oracle popped from below 9 to over 11, at which time it looked like a chart breakout. I recommended long Oracle position but only with a short-term put option (Oracle at 10.75, Sept. 10 put to hedge). In the last week of August, hopeful expectations were not met, Oracle sank below 9. Hold position, the put has 2 weeks left. Fund managers buy safe stocks with predictable earnings, judging by recent breakdowns in second tier competitors. Microsoft and Oracle appear far less risky than small cap or intermediate cap tech stocks whose earnings are so variable. Large cap management is rapidly reorganizing to streamline reporting. Stay long Oracle and a short-term put. My subscribers were also recommended Microsoft Jan. 55 call (MSQAK) at 2.55 when the stock hit 48 (Sept. 3). Wondering whatever happened to those states seeking MSFT antitrust remedies? Many Attorney Generals are busy running for governor. No legal action against Microsoft will happen with war on Iraq and anthrax hunts. My call option recommendations for Nasdaq's rally are NDX and QQQ calls. When I watch Sun Micro trade all day at 3.49 while broad market is falling 5%, or Intel rebound smartly Sept. 6 despite downgrades by Merrill Lynch and Dan Niles, I see technology stocks over-sold to be led higher by semis, biotech. Subscribers to my Email Newsletters read this on Sept. 8. SPECIAL. Get 2 to 3 issues a week for 6 months for $50. For my 150 newsletters published here in the past three years, please visit my Site Directory.
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