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Weekend Investor
Jan. 21, 2011, 5:11 p.m. EST
View all Weekend Investor "º
"¹ Previous Column
Why investors shouldn't break with muni bonds
First Take "º
Is Pandit worth it?
By Rex Crum, MarketWatch
SAN FRANCISCO (MarketWatch) "” The sky seemed to be the limit for shares of F5 Networks Inc., a poster child for so-called cloud computing stocks.
Shares of F5 /quotes/comstock/15*!ffiv/quotes/nls/ffiv (FFIV 109.97, +0.82, +0.75%) soared almost three-fold in 2010, as investors hailed the provider of switches and technology to speed data delivery across corporate networks. The Seattle-based company did so well that it was added to the benchmark Standard & Poor's 500 Index /quotes/comstock/21z!i1:in\x (SPX 1,283, +3.09, +0.24%) in December.
Smaller and riskier stocks have led this bull market, and that's reason to be cautious about them, says Nick Tompras, chief investment officer at money manager Alpine Capital Research. MarketWatch's Jonathan Burton reports.
But F5's earnings report and a dim forecast on Wednesday shaved more than 20% from the stock's market valuation.
The selloff was a stark reminder that while many investors are bullish on the tech sector, some of its high-profile leaders "” including Netflix Inc. /quotes/comstock/15*!nflx/quotes/nls/nflx (NFLX 182.09, -2.91, -1.57%) , Research In Motion Ltd. /quotes/comstock/15*!rimm/quotes/nls/rimm (RIMM 61.55, -0.85, -1.36%) and Dell Inc. /quotes/comstock/15*!dell/quotes/nls/dell (DELL 13.47, -0.13, -0.96%) "” can easily go from being hot prospects to high-stakes losers overnight.
Among many equity strategists, the general sentiment about the tech sector remains upbeat. Much of their attention centers on wireless communications and new media technologies related to the connected home. Those point to bullish conditions for companies in the communications equipment, semiconductor and data storage markets, say analysts at Canaccord Genuity, a Canadian brokerage.
Of course, optimistic reports and earnings results don't change the need for investors to take a hard look before buying into some brand-name tech stocks.
Indeed, F5 was among a handful of technology and telecommunications stocks that Canaccord Genuity said several weeks ago to avoid, citing its "lower 2011 return probabilities." Read more: Cloud-computing stocks' selloff could be overblown.
Another high-flying stock stirring controversy now is Netflix. Last year was a boon for Netflix, as the company continued its transformation from an online DVD-rental retailer to one of the biggest providers of digital content online, with strong growth coming from its options to stream movies and TV shows via digital TVs, Blu-Ray disc players, video-game consoles and set-top boxes. The company also offered a new subscription plan for streaming videos.
/quotes/comstock/15*!nflx/quotes/nls/nflx NFLX 182.09, -2.91, -1.57%
Investors bought the Netflix story, sending the shares up last year to nearly $180, from about $55. The stock hit a high of $209.24 on Dec. 1, but has since faltered by about 12%.
That decline comes as little surprise to some observers. Analyst Michael Souers of Standard & Poor's sees Netflix shares trading closer to $140 by the end of this year and has a sell rating on the stock, mostly on the basis of valuation and pressures on Netflix's subscriber base that could cut into revenue. Netflix, he noted, "will have to modify its business model over time to maintain its competitive position."
At Wedbush Securities, analyst Michael Pachter is far more pessimistic. Pachter's underperform, or sell rating, puts a $78-a-share price target on Netflix's stock. He points to the costs of acquiring more content as a main reason for his view.
Pachter says Netflix's deal in December to bulk up its streaming library with shows and movies from the ABC and Disney Channel networks illustrates how content-acquisition costs will catch up with the company.
Terms of that deal weren't disclosed, but Netflix reportedly will spend $50 million to $150 million a year for the Disney-owned programs. Pachter says that along with the estimated costs to acquire content from premium networks such as Starz /quotes/comstock/15*!lstz.a/quotes/nls/lstza (LSTZA 65.01, -0.17, -0.26%) , EPIX /quotes/comstock/13*!via.b/quotes/nls/via.b (VIA.B 42.28, +0.24, +0.57%) and others, Netflix could end up spending as much as $600 million annually in such deals.
Page 1Page 2 Add Comment › · Recommend (1) · Post: Alert Email Print More Weekend Investor Jan. 14, 2011 Why investors shouldn't break with muni bonds Jan. 7, 2011 Three sectors the GOP-controlled House could sway Jan. 3, 2011 Stock fund investors bank on growth in 2011 Dec. 24, 2010 Cash-rich companies gift wrap dividends Dec. 17, 2010 Ten money-making investment ideas for 2011 Explore related topics Computer Hardware Computer Software F5 Networks Inc S&P 500 Index Netflix, Inc Research in Motion Limited Comments Screener First Take Is Pandit worth it?Vikram Pandit is getting a raise from $1 to $1.75 million annually. Let that sink in for a moment.
5:20 p.m. Jan. 21, 2011
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/quotes/comstock/15*!ffiv/quotes/nls/ffiv F5 Networks Inc (FFIV) /marketstate/country/US The market is open8:20:41 am The market is closed8:20:41 am $ 109.97 Change +0.82 +0.75% Volume 9.44m Real time quotes var embeddedchart1932731565Chart = new EmbeddedChart('#embeddedchart1932731565', NormalChartStyleNoDecimals, 190, 90, '1dy', '5mi', null, null, null, 'US:FFIV'); jQuery.data($('#embeddedchart1932731565').get(0), 'embeddedchart', embeddedchart1932731565Chart); Add to portfolio FFIV Find a Broker Create alert /quotes/comstock/21z!i1:in\x S&P 500 Index (SPX) /marketstate/country/US The market is open8:20:41 am The market is closed8:20:41 am 1,283 Change +3.09 +0.24% Volume 0.00 Real time quotes var embeddedchart124732823Chart = new EmbeddedChart('#embeddedchart124732823', NormalChartStyleNoDecimals, 190, 90, '1dy', '5mi', null, null, null, 'US:SPX'); jQuery.data($('#embeddedchart124732823').get(0), 'embeddedchart', embeddedchart124732823Chart); Add to portfolio SPX Find a Broker Create alert /quotes/comstock/15*!nflx/quotes/nls/nflx Netflix, Inc (NFLX) /marketstate/country/US The market is open8:20:41 am The market is closed8:20:41 am $ 182.09 Change -2.91 -1.57% Volume 3.56m Real time quotes var embeddedchart1126162258Chart = new EmbeddedChart('#embeddedchart1126162258', NormalChartStyleNoDecimals, 190, 90, '1dy', '5mi', null, null, null, 'US:NFLX'); jQuery.data($('#embeddedchart1126162258').get(0), 'embeddedchart', embeddedchart1126162258Chart); Add to portfolio NFLX Find a Broker Create alert /quotes/comstock/15*!rimm/quotes/nls/rimm Research in Motion Limited (RIMM) /marketstate/country/US The market is open8:20:41 am The market is closed8:20:41 am $ 61.55 Change -0.85 -1.36% Volume 8.94m Real time quotes var embeddedchart1165937567Chart = new EmbeddedChart('#embeddedchart1165937567', NormalChartStyleNoDecimals, 190, 90, '1dy', '5mi', null, null, null, 'US:RIMM'); jQuery.data($('#embeddedchart1165937567').get(0), 'embeddedchart', embeddedchart1165937567Chart); Add to portfolio RIMM Find a Broker Create alert /quotes/comstock/15*!dell/quotes/nls/dell Dell Inc (DELL) /marketstate/country/US The market is open8:20:41 am The market is closed8:20:41 am $ 13.47 Change -0.13 -0.96% Volume 16.19m Real time quotes var embeddedchart1132179241Chart = new EmbeddedChart('#embeddedchart1132179241', NormalChartStyleNoDecimals, 190, 90, '1dy', '5mi', null, null, null, 'US:DELL'); jQuery.data($('#embeddedchart1132179241').get(0), 'embeddedchart', embeddedchart1132179241Chart); Add to portfolio DELL Find a Broker Create alert /quotes/comstock/15*!lstz.a/quotes/nls/lstza Liberty Media Corp (LSTZA) /marketstate/country/US The market is open8:20:41 am The market is closed8:20:41 am $ 65.01 Change -0.17 -0.26% Volume 512,285 Real time quotes var embeddedchart1368448040Chart = new EmbeddedChart('#embeddedchart1368448040', NormalChartStyleNoDecimals, 190, 90, '1dy', '5mi', null, null, null, 'US:LSTZA'); jQuery.data($('#embeddedchart1368448040').get(0), 'embeddedchart', embeddedchart1368448040Chart); Add to portfolio LSTZA Find a Broker Create alert /quotes/comstock/13*!via.b/quotes/nls/via.b Viacom Inc (VIA.B) /marketstate/country/US The market is open8:20:41 am The market is closed8:20:41 am $ 42.28 Change +0.24 +0.57% Volume 2.46m Real time quotes var embeddedchart1494697242Chart = new EmbeddedChart('#embeddedchart1494697242', NormalChartStyleNoDecimals, 190, 90, '1dy', '5mi', null, null, null, 'US:VIA.B'); jQuery.data($('#embeddedchart1494697242').get(0), 'embeddedchart', embeddedchart1494697242Chart); Add to portfolio VIA.B Find a Broker Create alert Featured Commentary » Next: Chuck JaffeOn Mutual Funds
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