Keeping Tabs on Industry Action Can Pay Off: Computer Storage Stocks Starting to Move
By Leo Fasciocco, Syndicated Investment Columnist
Let's take a look at eSignal's "Hot Groups Scan." With this computer screening tool, one can spot quickly, at any time during the day, what industry group of stocks is performing the best or the worst.
A key time to be on the lookout for an industry move is when a sector starts to perk up. A sector includes many industry groups. For example, the technology sector comprises semiconductor, computer storage, computer peripherals and many other tech groups.
Tech has had a rough time in 2005. However, in mid-May, the NASDAQ market started to act better than the Dow Jones Industrials. The NASDAQ has many tech-related plays and, lo and behold, they started to perk up too.
Using eSignal's Hot Groups Scan on May 13, 2005 showed that the strongest acting group was Semiconductors, up 2.3% for the session, followed by Computer Storage Devices at 1.9%. Other tech groups doing well were the Computer Hardware and Computer Network stocks.
Computer Storage Stocks really caught my eye. They are makers of disk drives and storage systems. The theme: More and more data is being piled up and it needs to be stored -- it never ends. So, bigger and faster disk drives are needed, as well as related storage products and systems.
The computer storage stocks were really battered during the bear market that ran from 2000 to early 2003. However, they are now on the mend and earnings are improving for many. eSignal's Hot Groups Scan not only points the finger at the top groups but also the performance of the stocks within the group for that day.
On this particular day, Storage Technology Inc. (STK) was the leader, up 1.05 to $30.71 for a 3.5% appreciation. Also doing well was EMC Corp. (EMC), up 0.44 to $13.86, and Hutchinson Technology Inc. (HTCH), up 1.15 to $38.75. Other good gainers were Sandisk Corp. (SNDK) and Western Digital Corp. (WDC).
Researchers have found that an industry move can be the cause of more than 50% of a stock's appreciation. That is because a significant industry development or a big surge in demand for its products and services can lift the whole group.
After spotting an industry group that you believe is ready to make a move due to some good fundamental developments, the next step is to try to pinpoint the two or three stocks in the group that will be the leaders, the best performers.
Some people make the mistake of thinking the leader in the group is the largest company. That is not always so. The leader for stock investors is generally the stock that moves up first and the most aggressively when the group begins to move. So, the key is to look at the action of all the stocks in the group and focus on the ones that are "hot" right now.
Secondly, check to see if they have big earnings prospects on the horizon. If the stock has both these two credentials, you could well be on your way to pinpointing a potential big winner. You definitely want to avoid the laggard in a strong industry group.
Storage Tech, a maker of disk and tape drives, showed the biggest point move. However, the company's earnings will be up only 7% this year and 8% next year. The stock could do well and is near a new 52-week high, but the earnings leave a lot to be desired.
EMC, a producer of hardware and software to store and protect information, is a recovering stock. It fell from 101 in 2000 to a low of 5 by late 2002. It has since recovered to 13.80 and is close to making a 52-week high. Net this year should be up 38% and next year, 21%. It is a very interesting and playable turnaround.
Hutchinson Technology, a maker of suspension assemblies for hard disk drives, hit a new 52-week high and broke out from a base at 37. It is $38.75. This fiscal year ending September 30, 2005, net should surge 77% with profits for the next two quarters to be up 308% and 226%. HTCH would look to be one of the favorites to be a top performer in the months ahead.
There are two other interesting issues. Komag Inc. (KOMG), a producer of thin film disks, rose modestly on the key day and is near a new 52-week high. Earnings should be up 100% for the next two quarters. Its drawback is that profits for 2006 will be up only 6%.
Finally, M-Systems Flash Disk Pioneers Ltd., is at $21.42 and not far from its 52-week high of $24.78. Earnings will be strong and should be up 59% this year and 37% next year. Its only drawback is that the stock was down 0.19 to $21.42. So, it did not perform well with the group's move. However, it is one to watch.
Mr. Fasciocco's articles appear on www.tickertapedigest.com. He is an independent contributing writer for several national publications. He is also president of Corona Investment Management. To get a free trial subscription to the Ticker Tape Digest Pro Report, which comes out daily on the web with midday updates, send an email message to leo2@tickertapedigest.com. Mr. Fasciocco can be reached by email at leo2@tickertapedigest.com.
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The the eSignal Market Scanner suite of scans works within eSignal and the desktop companion of QuoTrek, as well as on its own.
