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Tech stocks - Wednesday, October 8, 2008

Unfortunately, More Housecleaning Needs To Be Done

If the market had held today, or even had a gain, the staff at tech:stocker might have a recommended buying a stock or two today. But with the today's market retreating faster than the French in WWII, there's no way we can recommend buying anything right now. Is the bottom close? It depends on whom you listen to. Unlike past crashes in the tech sector, we believe the bottom is not going to be the prolonged resting place that it was in the past.

The difference between the last tech bottom in 2003 and now? Our society has become increasingly dependent on technology. Within tech, the storage sector and business optimization software should help the industry as a whole. While we're not expecting any surprises from Apple (AAPL:NASDAQ) in the near future, a new iPhone or a more affordable, and versatile, MacBook Air would definitely help the stock return to former heights. Tech is going to struggle, but trying to time the bottom is going to be a lot trickier than previous years. While we are selling a lot of our portfolio, we don't recommend selling entire positions in companies like Apple, Cisco (CSCO:NASDAQ), IBM (IBM:NYSE), Intel (INTC:NASDAQ), and Oracle (ORCL:NASDAQ). When these stocks start their upward climb, you'll be glad you held on to a few shares.

Today we received an email from a reader who was glad that he didn't sell his shares in eDiets.com (DIET:NASDAQ) at $4.50 as the stock closed in after hours trading at $6.91 and wanted to know why the stock skyrocketed. While we don't know what caused eDiets.com share price to move like it was being swallowed by Jenny Craig, we do know that stocks can be volatile in after hours trading. Electronic Communications Networks (ECNs) do not follow the same rules in after hours trading as they do during market hours. For example, let's say I wanted to buy 1000 shares of eDiets.com after hours because I heard a rumor they were going to be acquired by Jenny Craig. Depending on the ECN I was using, I may be only allowed to put in an order to buy the 1000 shares without being able to set a limit. My ECN then goes to find the 1000 shares and the only person with a sell order is asking $6.91. While the price is nowhere near the closing price of $3.96, I put in my order for 1000 shares and it is going to be executed. So now I have 1000 shares at $6.91 even though the stock closed at $3.96. Will the stock open at $6.91? Highly unlikely unless Jenny Craig really wants to purchase eDiets.com. Our advice: sell eDiets.com tomorrow and get whatever you can for it. While we are doing more to raise the visibility of the stock than the fruitless efforts of their PR department, we still believe that this stock will continue to drop. Don't be fooled by the after hours trading.

With the market sliding further today, buying anything would be foolish. We're pulling out the broom again and doing a little more housecleaning.

First up is Cogent (COGT:NASDAQ). While we still think biometrics is an interesting technology that will play a larger role in the future, the staff at tech:stocker believes this company is not using what little cash they have correctly. Until biometrics is more integrated with credit card transactions and other potential consumer applications we need to drop this stock.
With mass layoffs in the financial services industry and the winds of change blowing in Silicon Valley, showing Robert Half International (RHI:NYSE) the door is a no-brainer. With thousands of new resumes hitting Craigslist, anyone who needs to hire Robert Half to fill a position should think about a new line of work. When the economy bounces back, we'll look to "rehire" them in our portfolio but we don't want them on the payroll right now.

Last up is a recent buy recommendation, Lionbridge (LIOX:NASDAQ). Web globalization is a fact of life for the Fortune 100 but translation services are expensive. The Fortune 100 will hire translators to do a lion's share of the work that Lionbridge once handled. With the company barely showing a profit last quarter, the future doesn't look to bright in the near term. Until the global economy recovers, companies in the U.S. won't feel the need to spend large dollars on multilingual Web sites aimed at countries getting hit harder than the States.