SIVY ON STOCKS from money.com
May 30, 2001

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Sivy's mailbox

Answers to questions about tech indexes, preferred stock, AT&T and Diebold.

By Michael Sivy

I've received a lot of questions and comments lately about the volatile
tech sector. So let me begin by explaining what I think is going on and
outlining my best guess about the outlook for the rest of the year. In
recent columns, I've been generally upbeat about the long-term prospects
for tech stocks, but I've also warned about the likelihood of a June
pullback, as companies begin to project weak results for the current quarter.

The bad news has already begun, with Sun Microsystem's warning on Tuesday
that its quarterly earnings would be well below expectations. The stock
plummeted nearly 13 percent on Wednesday and helped depress the Nasdaq
composite index by more than 4 percent. And the market is likely to remain
shaky until second-quarter reports are mostly out around mid-July.

I expect that business conditions will be starting to recover by the end of
the third quarter. The Federal Reserve's interest-rate cuts take six to
nine months to work, and since the first cut was in January, we certainly
should be feeling the effect by Oct. 1. In the meantime, there will
probably be a lull, but that doesn't change the long-term case for big,
top-quality tech stocks. It just foreshadows a dismal summer.

Now here are answers to some specific questions:

Q. You've written about the Nasdaq-100 Trust and the SPDR technology
portfolio. What are they and where can I find them?

A. They are unmanaged index funds that trade on the American Stock
Exchange. You can buy them through any broker just as though they were
common stocks. The Nasdaq-100 (QQQ) [QQQ], which holds 100 Nasdaq stocks,
is the more aggressive of the two. The tech SPDR (XLK) [XLK] holds more
than 80 tech issues, but includes mature businesses like IBM that trade on
the New York Stock Exchange. Both, however, are a good way to buy a broad
cross section of big tech stocks to hold for several years.

Q. In "The Bull is Back!," you recommend a Merrill Lynch preferred stock.
Where can I find it?
[ http://www.money.com/money/depts/investing/sivy/archive/010518a.html ]

A. I think preferred shares are a worthwhile alternative to bonds for
investors looking for fixed income. Many good-quality preferreds yield more
than 7 percent and they often can be bought in round lots costing less than
$2,500 (compared with at least $10,000 for a bond).

The biggest problem with preferreds is that they often can be called, or
redeemed, before maturity. Most preferreds are protected against calls for
four years or so, but some Merrill Lynch issues have longer call
protection. In the past, I've recommended Merrill Lynch
preferred F (mer-f), which appears in the Wall Street Journal preferred
stock table and currently yields 7.2 percent. (Preferred ticker symbols
vary from one financial website to the next. For the most recent quote on
Money.com, click here [MER-F].)
[ http://quote.money.com/money/quote/qc?symbols=MER-F ]
For more information on how preferreds work, see "Preferred shares:
Uncommon values."
[ http://www.money.com/money/depts/investing/sivy/archive/001020.html ]

Q. What do you think about AT&T?

A. Frankly, I don't know what to think at this point. Chairman C. Michael
Armstrong was right that the company couldn't stick with its traditional
strategy. But the so-called broadband company he tried to build through
expensive acquisitions of cable companies hasn't solved the problem.

Now AT&T [T] is backtracking by splitting up again with planned spinoffs of
its wireless and cable TV operations. I figure that the share price is
cheap relative to the total value of AT&T's assets, but the company isn't
earning much money right now. To my mind that makes the shares a hold, on
the theory that sooner or later the asset value will show through.

Q. You've recommended Diebold before. What do you think of it now?

A. I basically like Diebold [DBD], a midsize tech stock that is a leading
maker of automated teller machines. Diebold's stock dropped more than 60
percent in 1998 as bank mergers and branch closings slowed demand for new
ATMs. And currently, demand is suffering from the capital spending slump
caused by the economic slowdown. Even so, the stock is up 50 percent to
$30.25 a share over the past 18 months -- and it has gained a couple of
bucks since I last recommended it in November.

Capital spending should improve over the next couple of years. Diebold's
earnings look to be flat this year, but should be up more than 10 percent
in 2002 and could grow at nearly a 15 percent compound rate over the next
five years. Best of all, the stock is cheap at only about 16 times
estimated earnings for the current year.

###

Post your comments on Michael's column at:
http://www.money.com/depts/investing/sivy/index.html

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