Navigating tech's choppy waters

The tech sector had a great run early in the year, but the biggest gainers have seen recent declines. Fortune's Colin Barr makes the case for caution.

By Colin Barr, Fortune

NEW YORK (Fortune) -- The way that big tech stocks have been wandering around the map lately, you need a global positioning system to figure out what direction they're headed in. And indeed on Friday, investors found their way back to Garmin (Charts), the once-highflying maker of global positioning systems - at least for a day. Garmin shares surged 16% Friday after it dropped a costly acquisition plan and extended a deal to buy digital map data from its current supplier. Friday's bounce shook Garmin out of a six-week-long swoon that shaved a third off its market capitalization, as Wall Street began wondering about the company's place in a fast-growing but rapidly consolidating industry.

Garmin's roller-coaster fate has been shared by a number of tech stocks: Google (Charts, Fortune 500), Apple (Charts, Fortune 500) and Research in Motion (Charts), and (Charts) still look a bit lost after a recent swoon. The wild action comes as investors brace for a postclose earnings report Monday from another big tech favorite, Hewlett-Packard (Charts, Fortune 500).

One factor that has the tech market spooked: Cisco's fiscal first-quarter earnings. Shares in Apple, Google and RIM have dropped between 12% and 19% since November 6 as momentum investors bailed out - spurred in part by Cisco's cautious comments about its prospects for selling communications gear to hard-hit financial firms.

Scott Rothbort, who runs investment adviser Lakeview Asset Management in Millburn, N.J., and owns Google, Apple and RIM, says the big selloff shouldn't discourage investors who bought into these high-growth stories for the long haul. "Cisco sent an alarming message," but one that was "overdone" by the market, Rothbort said in a telephone interview after the market closed Friday. He said this year's outsize gains - even after the recent selloffs, RIM is up 152%, Apple 96% and Google 38% - have been driven in part by momenum players whose understanding of the stock market is limited to knowing the location of "their keyboard and the enter key."

When the stocks failed to keep rising, people who bought in recently for a quick ride were soon feeling a lot of pain, Rothbort said. But he adds that longtime holders of these stocks are inclined to hold on because a drop in the stock market doesn't change Apple's ability to sell iPods, Google's domination of the paid search business and RIM's stranglehold on wireless email for businesses. "There have been no fundamental changes," Rothbort said.

Rothbort's view is widely held. Fortune's David Kirkpatrick on Friday argued that that Google stock is probably still worth buying, given its huge growth prospects. A hedge fund manager recently told Bloomberg Radio that he expects Apple stock - not Google, Apple - to hit $600 as the Mac grabs market share away from Windows PCs.

Few would make such heady predictions for Garmin. The stock's long run was rudely interrupted in October, when Nokia agreed to acquire Navteq, which supplies map data to Garmin, for $8.1 billion. Garmin, feeling the competitive pressure, then made matters worse by proposing to buy the remaining independent digital mapmaker, Tele Atlas of the Netherlands, in a hostile deal worth $3.3 billion. That sent shares tumbling into the low $80s from a 52-week high of $125 in the space of just a few weeks.

Garmin set off Friday's rally by undoing the Tele Atlas bid, but Rothbort - who owned the stock before selling in the recent tumble - says he isn't sure the company is really better off now. He said he once believed that the way to play the boom in navigation data was through GPS makers like Garmin, but now he wonders if the data providers themselves - such as Nokia, once it completes its takeover of Navteq - aren't the better purchase. In any case, he's staying away from Garmin for now. "I don't know what to think," he said. "I don't want to get whipsawed."

That's a common sentiment among tech investors these days.  To top of page

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