At Hambrecht & Quist's recent technology conference in San Francisco, money managers weren't quite sure whether the high-tech stocks, which have slumped some 10% to 20% so far this year, have bottomed out. The cautious presentations made by most technology companies added to their unease. But some smart investors are beginning to snap up shares of a few high-tech companies they think are looking upbeat.
One group getting attention is computer disk-drive manufacturers. "They were just about the only good, positive story in high tech," says Mike Murphy, editor and publisher of the California Technology Stock Letter. Disk-drive makers have posted upside earnings surprises, and they're likely to beat Street estimates again in the coming quarters, adds Murphy.
His picks: Conner Peripherals, Quantum, and Seagate Technology. They have all fallen sharply from their highs, but Murphy sees them rebounding smartly. "In this kind of an uncertain environment, they are among the best buys because the risks in owning them are quite low at this point."
REVENUE PUSH. Murphy notes that Conner, a major maker of high-performance 2 1/2-inch and 3 1/2-inch Winchester disk drives, posted earnings of 42 cents a share in the first quarter vs. the Street's estimate of 38 cents. In the quarter ending June 30, 1992, most analysts are looking for 40 cents to 50 cents; Murphy believes Conner will earn 70 cents. Disk drives are used to record, store, and retrieve digital information in desktop and workstation computers, as well as notebook and laptop models. Conner has been expanding aggressively and has $1 billion in cash. Murphy says that the company is exploring opportunities outside its traditional business. A spokesman confirmed that Conner wants to broaden its markets.
Quantum, a leading supplier of hard-disk drives used in PCs and desktop stations, also topped estimates of 30 cents a share for its most recent quarter, reporting 38 cents. For the June quarter, analysts expect flat earnings, but Murphy is convinced Quantum will do 50 cents. Quantum has grown rapidly in three years, pushing revenues over $1 billion.
And Seagate, a large maker of rigid magnetic disk drives for various computer systems, including the supercomputer, earned 59 cents in its March quarter vs. estimates of 50 cents. Seagate should earn $1 in the June quarter--exceeding Street estimates of 76 cents, says Murphy.
The stock to short? Sun Microsystems, according to Murphy. "It's a good company, but revenue growth has been slow, and the company may produce an unpleasant earnings surprise for the year," he adds. Price cutting and stiff competition from IBM and Hewlett-Packard have affected sales and earnings, says Murphy.
MURPHY'S HIGH-TECH BUYS... 52-week Recent '92 Stock high price target CONNER PERIPHERALS 23 21 30 Expanding aggressively QUANTUM 18 15 22 Fast revenue growth SEAGATE TECHNOLOGY 16 15 23 Sharp earnings rise ...AND A SHORT SUN MICROSYSTEMS 37 28 20 Intense competition DATA: BRIDGE INFORMATION SYSTEMS INC.