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Tech stocks - Tuesday, October 7, 2008

Out With The Old, Wait To Buy The New

Nobody likes losing money. And because nobody likes seeing their portfolio fall like 49ers did to the Patriots yesterday, we have days like today. Nobody believes in the market so everyone decides to sell. And can we blame the sellers? With unemployment increasing faster than the price of gold, why should anyone believe the bailout package is going to work? After all, the $700 billion bailout is not going to help consumers by more stuff on eBay (EBAY:NASDAQ) nor is it going to increase housing values. Let's face it, this country's economy is in big trouble and Europe isn't far behind.

So what should you do? The staff at tech:stocker is in unanimous agreement in saying that this market is not going to get better any time soon. Forget about offense (like the 49ers did on Sunday), and play some defense (the first time this season that the Patriots actually brought their defense to a game). What do we mean? Sell stocks that are not firmly established companies or do not pay a solid dividend.

Why sell right now? Because everyone is going to need some capital to purchase the companies that have been sold out of panic versus smart trading. Selling a stock when it is lower than your purchase price definitely hurts but that pain doesn't last long. And when stock you purchased with money outpaces the market while the stock you hold flat lines at its new valuation, you'll feel better about selling for a loss. Trust us.

So instead of picking anything today, we're going through our recent buy recommendations and offering a list of five stocks that we would sell tomorrow to generate capital to buy better stocks when the time is right.

Our first sell recommendation is Rackable Systems (RACK:NASDAQ). The staff at tech:stocker still likes the company's energy efficient servers but there are too many question marks surrounding this company for us to keep them in the portfolio. We would like to wait and see how there new SVP of Sales motivates the team and if the new CFO can control costs better but we can't. Even though we list them first, they would not necessarily be our first trade on the computer tomorrow. Still, sell Rackable and move on.

We've also had enough of Jerry Yang and the love of his life, Yahoo! (YHOO:NASDAQ). Does Mr. Yang still believe he did the right thing by fighting off Microsoft (MSFT:NASDAQ)? If he does, is that enough to get him legally committed in the state of California? With advertising revenues sure to disappoint this quarter, this stock's slide is going to continue. At this point, not even Carl Icahn can perform a miracle large enough to save our investment.

Was former VMware (VMW:NYSE) CEO Diane Greene a little more to the company than we realized? Unfortunately, that looks to be the case. While this was not an aggressive "buy" recommendation, we still liked it because the company replaced Ms. Greene with a former Microsoft executive. Unfortunately, the arrival of new CEO Paul Maritz hasn't inspired investors. Until Ms. Greene comes back to VMware and resurrects the share price with her all-knowing presence, we are staying away.

A good product, but too many problems is what we think of when we hear NVIDIA (NVDA:NASDAQ). Not even their GeForce GPUs can make their balance sheets or production problems look interesting to investors. The stock isn't low enough to make them an acquisition target so we have to jettison them from the portfolio.

Finally, we recommend dumping State Street Corporation (STT:NYSE). For us, this is like picking the Angels against the Red Sox. Even though it's the right thing to do given how the Angles owned the Red Sox during the regular season, you just don't feel good about doing it. Sure the Red Sox are leading two games to one in the series, you know it's the Red Sox and they could easily drop two like the Cubs dropped three to the Dodgers. Unfortunately, investors have really lost confidence in this stock over some Lehman paper causing it to drop almost 31% this month.