When we recently found out what Zacks senior consumer technology industry analyst
Ian Gilson, PhD, CFA thought about the overall outlook within his stock coverage, we were able to find a couple Buy recommendations ? but also a couple of Sells.
Are you retaining a less-than-sunny stance on consumer electronics stocks? Why or why not?
On a worldwide basis, it is likely that lower economic growth and increasing unemployment will reduce consumer spending beyond that of lower house sales and lower auto sales. This is likely to extend into the consumer electronics markets.
Haven't the large pullbacks created some compelling valuations, however?
The U.S. stock market has lost five years of growth. Valuations have dropped in line with the decline in prices. Although there are many areas that have not yet felt the impact of a worldwide recession, many stocks reflect the perception that capital markets are dead or dying.
Stocks with negative cash flow have been hard hit. I would look for areas of economic strength, positive cash flow and potential growth in earnings at a reasonable price.
Do you see any buying opportunities presently?
SINA Corp. (SINA) is one of the most well-known online brands in China. The company is a leading provider of online media and value-added information services to global Chinese community. SINA continues to do well in its online brand advertising and is increasing the gap between it and its closest competitor in the online brand ad market.
Sohu.com, Inc. (SOHU) is a leading online brand in China. Services provided by the company include news, search, e-mail, games and wireless messaging. The company offers services through one of the most comprehensive matrices of Chinese language web properties and proprietary search engines, consisting of the mass portal and online media destination sohu.com; interactive search engine sogou.com; online mapping service provider go2map.com; online alumni club chinaren.com; games information portal 17173.com; real estate website focus.cn; and wireless value-added services provider goodfeel.com.cn.
In the second quarter of 2008 the company derived about 42.5% of its revenue from online advertising. Online games and the wireless business each contributed 47% and 9% of the company's revenue, respectively. Gaming is growing rapidly and should do well over the next few years.
Which companies would you advise investors stay away from in this space?
A decline in consumer purchases would impact Sony (SNE), as well as the contract manufacturing companies such as Sanmina-SCI (SANM). We would avoid these stocks.
