Ugh . . . .
Another lousy week for tech stocks. For the whole stock market, for that matter.
But technology stocks bore the brunt of it. Let's look at some of the bigger players.
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Company One-Week Return
Cisco (Nasdaq: CSCO) - 12.4%
Oracle (Nasdaq: ORCL) - 11.3%
Research In Motion (Nasdaq: RIMM) - 9.8%
Google (Nasdaq: GOOG) - 6.1%
Intel (Nasdaq: INTC) - 5.4%
Akamai (Nasdaq: AKAM) - 4.9%
Source: Yahoo! Finance.
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It's hard to say where the icy finger of guilt should point. Analysts who follow the sector say that Cisco's fall-off could be attributed to plummeting business spending sentiment, even though the company recently reported strong quarterly earnings and strong sales. But Cisco's management issued a quote stating that the company thought that spending was slowing - a big red flag coming from a company with as much clout as Cisco.
So this week the Motley Fool had an interesting take on the direction of the technology corner of the stock market. Noting that the sector looked like it had gone 15 rounds with Joe Frazier in his prime, the Fool was fairly bullish about the rest of the year for tech stocks, listing the following three reasons why we should be bullish, too.
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1. Once you're in, you're in. Tech firms tend to operate on long-term contracts. Think of Oracle. The database specialist requires its customers to sign up for multiyear maintenance deals after installing its software. That way, it's guaranteed a rich stream of predictable, high-margin revenue, much of which becomes free cash flow.
2. All business is e-business. Name a company. Who's that again? Oh, yeah, I know them. They've got a database. And a few hundreds PCs. And a few servers to feed those PCs and two dozen internal and external websites. File cabinets? Nah, they trashed those years ago.
3. A better balance sheet. By virtue of their innovative streak, tech firms are more likely to realize higher margins and, thereby, greater cash flow than your average retailer or manufacturer. So much cash flow, in fact, that they can't ever seem to spend it all. Seriously. Ask CEO Eric Schmidt what his plans are for Google's $14 billion war chest.
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One stock that might fill the bill for a resurgent 2008 is GameStop. I've written about GameStop before, and about the video game market multiple times. On Wednesday, GameStop share's fell by 3%, basically for no reason other than the rest of the tech market was having a lousy day. Not good, but nobody ever said that Wall Street was fair.
But earlier today, GameStop came out with some encouraging financial news, announcing that it had increased earnings guidance for the fiscal year ending February 2, 2008.
After a stronger than expected January, GameStop says it's increasing its fourth quarter and full year earnings per share guidance by $0.02 to range (now) between $1.11 to $1.12 and $1.77 to $1.78, respectively. Says GameStop: "Driven by impressive domestic and international sales, and in spite of temporary industry-wide video game system shortages, preliminary comparable store sales for the fourth quarter exceeded our expectations and came in at a very strong 17.4%."
I like GameStop. I go the store with my boys and it's always well-trafficked, even after the holidays. And I agree with company analysts who say that GameStop should continue to benefit from the video game console upgrade cycle, not to mention the Wii Fit that could see its U.S. release in May. It's a growth stock that should keep growing.
So maybe all the news isn't so bad with the tech sector. Even after a week as bad as this one.