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Seven Bear Stocks In Technology, Media And Telecommunications

 September 16, 2010 11:20 AM
 


In this article, I will pick seven bear stocks in the TMT index. Since TMT index is composed of 40 Technology, 23 Media, and 37 Telecommunications stocks, our portfolio composition is fixed at 3:1:3::T:M:T.

Media stock - Gannett Co., Inc. (NYSE: GCI)

Gannett is the largest newspaper publisher in the U.S. GCI's current stock price is in the band of $13.2 and $13.47, compared to 52 week band of $9.03 and $19.69. Though, I calculate its intrinsic stock value to be more than $14, I am apprehensive about the performance of the stock due to its debt burden. There were some other stocks that competed to be included in this portfolio but they were rejected as they were not part of NYSE TMT index.

Technology stocks – NOVL, RHT, and QSFT

Novell, Inc. (NASDAQ: NOVL)

NOVL's current stock price is trading in the band of $5.85 and $5.92, compared to 52 week band of $3.84 and $6.36. However, I calculate its intrinsic stock value to be less than $1. In terms of ROE, it is the worst performer among its peers.

NOVL relies on a series of alliances and partnerships to drive sales growth; its partners include IBM, HP, Dell, Intel, Oracle, SAP, AMD, CA, EMC and Adobe. NOVL believes it has created an ecosystem around it to combine its strengths with those of its partners; however, these partners are also counted among the strategic partners of many other software firms, and so I doubt the partnerships to provide a significant competitive advantage.

Red Hat, Inc. (NYSE: RHT)

RHT's current stock price is in the band of $38.01 and $38.79, compared to 52 week band of $24.73 and $39.08. However, I calculate its intrinsic stock value to be less than $25. Moreover, in terms of ROE, it is among the worst performers among its peers.

Although I believe RHT is benefiting from increased adoption of virtualization near term, I think RHT will lose market share as more companies standardize their IT infrastructure with the market leader VMware.

Quest Software, Inc. (NASDAQ: QSFT)

QSFT's current stock price is in the band of $22.8 and $23.26, compared to 52 week band of $15.16 and $23.85. Though, I calculate its intrinsic stock value to be more than $28, I am apprehensive about the performance of the stock due to its margin compressions, and patent wars with Centrify Corp.

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