Wednesday, July 25, 2007 0 comments ++[ CLICK TO COMMENT ]++

An area to watch: 2000 tech high flyers

A contrarian area that I am watching is the tech high flyers from 2000. You know...those companies with ridiculous valuations back in 2000... at least the ones that survived and are big. I'm Canadian so I'm paying particular attention to the Canadian ones that fell from their lofty valuations. In particular, I am keeping an eye on networking/telecommunications companies like JDS Uniphase (JDSU; TSX: JDU), and EMS (electronics manufacturing) companies like Celestica (CLS; TSX: CLS.B).

Some of these have fallen 90%+ from their peak and still aren't attractive. One of the problems is that their margins are still low, while having massive capital requirements. Celestica seems to operate on thin margin while requiring billions in plant & equipment investment every few years. To make matters worse, some of these are cyclical so any economic slowdown will hurt them. But all these issues present an opportunity.

It's generally good to buy cyclicals when the P/E ratio is high or undefined, and to sell when the P/E ratio is low. If one follows this reasoning--not necessarily foolproof by the way--then these stocks are probably closer to the trough than the peak. I am waiting to see what happens to these companies when the US economy slows (as I expect). If they can get through that then it may be time to investigate them further. I am only looking at the big companies that actually have a business. The question is whether they will make any money.

If you missed the NASDAQ bubble and don't know how bad things were, just check out the chart of JDS Uniphase, which was one of the leading new economy stocks.


In present day split-adjusted terms, JDSU was $1200 back in 2000 versus around $15 right now. Want to compute the percentage loss?

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