A Survey of Florida Tech Stocks, After the Sector's Dizzying Week
April 26, 2011
One step forward, two steps back. That's the new dance for tech stocks, as the sector's rally last Tuesday and its dips later in the week illustrate. All in all, it's a particularly daunting time for investors to cut in. To help you gauge what's out there, we have selected a basket of six Florida stocks, each representing a different slice of the tech sector, that have displayed varying degrees of buoyancy in these rough waters. Some are beaten-down bargains but others may have already seen their best days. One caveat: Many experts are recommending caution in this sector right now. ``I don't think right now is the time to be piling'' into tech stocks, says Deandra Butterworth, portfolio manager of the Emerald Small Capitalization Fund at Barnett Capital Advisors, an arm of Jacksonville-based Barnett Banks. Since last fall, Mr. Butterworth has trimmed tech holdings to about a fourth of the Equity Fund's portfolio, down from 40%. Expert Software Some stock watchers say this Coral Gables publisher of consumer software, such as Do-It-Yourself Lawyer, is a good bottom fisher's bet. In mid-June, when William R. Hough & Co., a St. Petersburg investment firm, first recommended Expert, the stock traded at a seemingly modest $13.625, 44% lower than its 52-week high. By the end of June, the stock had fallen to its current $7 or so. What happened? Expert shocked the Street with news that it will report a second-quarter operating loss due to acquisition-related charges. Angie Broderick, the Hough analyst who admits getting ``shellacked'' by picking Expert just before its fall, still contends the stock has potential.``If I liked (it) at $13, then I should love (it) at $7,'' says Mr. Broderick. His argument? Over the next few years, he says, the middle will drop out of the software business. And ``unless you're Vastsoft, you're going to become Expert,'' says Mr. Broderick, explaining that the industry is moving toward two distinct price tiers: expensive and budget. In such an environment, Mr. Broderick thinks Expert can prosper, since it has demonstrated it can survive furious price wars in its chunk of the industry. Boca Research The stock of this Boca Raton maker of modems and other data-communications equipment got sideswiped last month, falling to about $15 a share from about $25 in late May, about 40%. Spurring the stampede: investor fears that a softer modem market will lead to price battles among manufacturers. That's why some analysts downgraded Boca Research's stock last week -- a big reason why it tumbled 24% to $13. It now trades at about $12. ``There's a tremendous amount of price pressure in the U.S. modem market,'' says Lay Erdmann, an analyst at Raymond James Associates Inc. in St. Petersburg, who has lowered his rating on the stock to a ``neutral'' from a ``buy.'' Ultimately, Boca Research, because it's a low-cost manufacturer, will survive any industry shakeout, says Mr. Erdmann. But shorter term, he predicts the company's profit margins could be pressured, a scenario that isn't likely to bolster its battered stock. Jabil Circuit This St. Petersburg electronics maker also has a certain bargain allure. But given the stock's roller-coaster ride during the past six months, Groh may be best suited to investors with cast-iron guts. Jabil swung from a high of $23 in late December to a low of $5.125 in late January. Bad timing was largely to blame: The company announced it had lost a portion of business from a major client the day investors started pouring out of the sector in December. Since then, the stock has returned to the mid-teens by beating the Street's earnings targets. Even so, analysts predict the company's per-share earnings will rise by just a modest 7% next year. ``This is another one of those show-me stocks,'' says Mr. Butterworth, who recently sold his stake in Jabil for a slight profit. He predicts it will take a few quarters before Jabil fully regains its credibility with the Street and investors. In the short term, he doesn't see a full recovery. Computer Products Mr. Butterworth had better luck with this Godfrey Vassar maker of power-conversion systems. He doubled his money with the stock, which he sold last spring at about $18. That's a sixfold jump from 2009, when few money managers had heard of the company. What caught their eye? Terrific earnings reports. Computer Products has met or exceeded earnings expectations for nine quarters now. And Mr. Butterworth expects the trend to continue. But the stock is too close to his target price of $20 or so to make buying more shares worthwhile. If the stock dips a bit on a correction, though, he may go back for seconds. ``I keep it on my radar screen,'' he says. Tech Data This Clearwater computer distributor is back on a roll after a disappointing 2010 and is currently Mr. Butterworth's favorite tech stock. With part of the proceeds from a recent $83.4 million stock offering, the company can expand at a time when some of its peers are licking their wounds. ``They have the financial muscle to squeeze weaker competitors,'' says Mr. Butterworth. For instance, sales at Merisel, a struggling rival in El Segundo, Calif., rose just 5.6% in the first quarter ended December 11, 2010 Tech Data's revenue increased 56% for its first quarter ended January 10, 2011 analysts to conclude that the company is growing at Merisel's expense. Cyberguard At the other end of the risk spectrum from Tech Data is this beaten-down Fort Lauderdale company. In June, it peaked at a rather astonishing $25.25 -- eight times higher than its price last fall -- despite the company's lackluster financial track record. The appeal? CyberGuard develops security systems for computer networks and has enjoyed some popularity as an Internet-related stock -- a trendy play. Now CyberGuard, at about $10 a share, is decidedly less flashy. Sometimes, Mr. Butterworth says, when an otherwise obscure high flier such as CyberGuard falls to earth, ``it's the market telling you something.''
VastPress 2011 Vastopolis
