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Coming the week of November 8th 1999:  An all new stock ideas section featuring long and short ideas.



U.S.A. Internet Search Engines Coca Cola Microsoft Warner Lambert
DoubleClick Dell Computer Amazon.com Lycos Gillette
General Electric Ballard Power Standard and Poor's Depositary Receipts American Intl Group America Online
Schering Plough Walt Disney CMG Information Services SPAIN Spanish Banking Sector
Telefonica Banco Santander Banco Bilboa Vizcaya Banco CentralHispano U.S. Electrical Utilities
DJIA Diamonds Yahoo Infoseek C NET Vodafone PLC
GERMANY Deutsche Telekom Daimler Chrysler Con Edison Energis PLC
Colt Telecom Group PLC American Express Inktomi Internet Service Providers Mindspring
Earthlink Lucent Technologies France Telecom Lernout & Hauspie Speech Products Pfizer
Procter & Gamble Colgate-Palmolive BestFoods British Telecom Charles sch
Cisco Systems Wal-Mart Stores The Gap Abercrombie & Fitch eBAY Inc
Niagara Mohawk Power FPL Group Inc Onsale Inc Bluefly Inc NASDAQ-100 Trust


U.S.A. : see our commentary on main opinion page 
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SPY: (Standard & Poors Depositary Receipts) The best way to directly play any decline in the U.S. market is through SPY. This is an AMEX traded index fund that directly represents the  S&P 500.  The technicals on SPY have been deteriorating since April 3rd. It has fallen below both its 21 and 55 day moving averages. On Balance Volume has been falling strongly since 4/3. We look for the first support in any major decline to be at January's lows of 91.
DIA: (DJIA Diamonds) We continue to remain bearish on the U.S. market. We view the large cap new nifty 50 as overvalued by any historical measure. We feel that in any market downturn the decline in the Dow will outpace the decline in the SP500. DIA is in effect an exchange traded index fund which will allow you to short the Dow Jones Industrial Average. Now is the time to short DIA.
NASDAQ-100 Index Tracking Stock (QQQ)- QQQ is an index tracking stock designed by AMEX/NASDAQ to track the performance of the NASDAQ 100 Index.  The NASDAQ 100 Trust holds a portfolio consisting of all of the stocks in the NASDAQ 100.    The NASDAQ-100 Index has soared 70% since bottoming last October, led largely by the 5 largest cap stocks in the index: Microsoft, Intel, Dell, Cisco, and Worldcom.   We feel that the index is severely overextended and vulnerable to a sharp correction at this point.  The shares of both Intel and Dell have reversed to the downside.  Microsoft shares have soared on a combination of rumors of an anti-trust suit settlement and stock-split-chasers driving the share price up.  MSFT shares are extremely overbought and vulnerable to a tumble.  We feel that shorting QQQ is the best way to play a correction in the NASDAQ-100.  The shares may be used as a pure=play short position, or as a hedge to protect long-side profits.  QQQ may also be used by investors as a hedge to protect profits in the shares of individual NASDAQ-100 components: an individual with a profitable long position in MSFT could protect against some of the downside risk by shorting QQQ.


Internet Search Engines: Do you remember biotech in '91/'92, Boston Chicken's IPO, Netscape's IPO--we do.  We also know that these over priced, over hyped stocks haven't come anywhere near their highs since then. We submit to you that the search engine companies are birds of the same feather. Sure they have great growth rates, but they have even greater valuations. Do you really want to buy a stock whose PEG ratio is 3 times it's growth rate, or that is trading at 300 times next year's earnings? We know we don't. When the growth rate slows from 100% a year to 40% the stocks will come crashing down. Let us also not forget the whirlwind pace of technological change--today's hot tech idea is often tomorrow's company relegated to the dustbin of history. We're looking to take the entire group of internet search companies out and short them. Extreme overvaluations, vertically ascendant charts, and excessive investor enthusiasm are our favorite shorting friends. (5/19/98) 
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  We also like LYCOS (LCOS) as a short. Lycos in many respects has been left behind in the race to be the premier search engine/internet portal. We see it falling farther and farther behind Yahoo in name recognition and use. Trading at an astronomical 293 times next year's earnings, with a PEG of 6, this stock has entered a downturn which we expect to continue.(5/22/98)  
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We are adding 3 new names to our short picks in the overvalued internet search/content provider/portal sector.  YAHOO (YHOO) has been enjoying phenomenal growth as it seek to establish itself as the premier internet portal and directory. It has also enjoyed phenomenal growth in valuation. YHOO is currently trading at  38 times book value,55 times sales, 196 times 1998 earnings estimates, and 91 times 1999 estimates. The stock has a PEG ratio of 3, and a PEG based on next year's earnings of 1.6. We look for valuations to come back down to earth soon as internet stock mania withers. Technically YHOO is deteriorating. Money flow has been falling since early May. The 21 day moving average has fallen below the 55 day moving average, and the stock has completed a failed double top. Our first downside target is the 21 week M.A. at 94. We look for the stock to approach its 200 day moving average at 75 by fall.  Our second pick, INFOSEEK (SEEK), enjoyed a 30% runup last week. We like Infoseek's technology, but we feel they will have an uphill battle against larger rivals in the race to become one of the main internet portals. The stock has fallen from its 52 week highs of 45, but is still trading at twice its February levels.  The stock has runup from 4 3/8 over the past year.  We view this stock as being extremely overvalued, trading at 107 times next year's earnings estimates, with a PEG of 2.1.  Technically, SEEK has entered a downtrend. The stock is showing divergences in both money flow and OBV. We look for the stock to hit overhead resistance at 32-33 and from there to begin a final wave 5 downward towards its 200 day moving average at 16 1/2. Our third new pick, C/NET (CNWK) surged 11 1/2 points this week after NBC purchased a stake in the company. We view the mark up in the shares as excessive. C/NET's new online service SNAP! entered the portal game late. Even with NBC's backing, SNAP! will face an uphill struggle to gain market share against more established rivals. We regard the deal as too little, too late. We expect the shares to decline as deal related investor enthusiasm subsides. Trading at 17 times sales, and at a prospective 1999 PE ratio of 66, this stock has limited upside potential and  great downside risk. Distribution has been taking place. We look for CNWK to return to its pre-deal level of 31, near its 200 day moving average.(6/12/98)


INKTOMI (INKT): We are amazed--not by Inktomi's technology, but by the fact that 2 analysts  recommended this overheated stock in an overbought industry this morning. Recommending jumping on top of an expanding bloated bubble has never seemed the best course of action to us. Perhaps someone should remind them that all bubbles eventually pop. We are even more amazed by the investors who sent this stock up 25 1/2 points during the day. But then again, maybe we shouldn't be amazed, investors have yet to learn from the long line of past financial manias. INKT is a promising growth company, but its current valuation bears no resemblance to the actual fundamentals. INKT has developed new search engine technology that speeds the traffic of web based info by created a large database of web addresses so that the information doesn't have to be retrieved from its original location. INKT has signed up AOL, DEC, and Yahoo to license its technology. While the technology is good, it was already priced into the stock when it first started trading at 18 1/2 last month. With a market cap of $1.5 billion, Inktomi  is trading at 115 times trailing sales. We have yet to see a profitable buying opportunity develop when stocks are purchased at 115 times sales. However, we have seen many short sale profits occur at these multiples. Therefore we will short this Tulip before it starts to wilt. (7/6/98)   (7/6/98) 
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KO:(COCA COLA) It may be a great company, and we do drink several liters of their products a day, but great companies and great trading ideas often don't mix--especially when they're trading at excessive valuations--i.e. 47 times this year's earnings, 41 times next year's, with a PEG of 2.4 (based on next year's earnings). We have trouble finding justifications for KO's market cap being greater than the combined market caps of South Korea, Malaysia, Thailand, Indonesia, and the Philippines. We'll overlook their adding   proceeds  from the sale of their bottling divisions to regular earnings and just call this stock overvalued. Investors have flocked to own this name brand tulip during the market's rise, and during a market fall they will flee just as fast--that's if Asia related problems don't show up in KO's earnings to make them exit first. This looks a good bet to short. 
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MSFT:(Microsoft) Sure it's the most dominant software maker in the world, but we see clouds on the horizon. For starters, there is the little matter of an antitrust lawsuit against MSFT, add to that slowing profit growth and you have a good case for a shrinking PE ratio.   Looking past the overblown hype surrounding Windows 98, we fail to see enough new, must have features in this new release to spark enough sales to avoid an earnings disappointment.  This stock has already entered a downtrend and is 15% off its highs.   Trading at 51x '98 and 43 times '99 earnings, with a PEg of 1.8( based on 1999 estimates), we're drooling over this as a short sale.  
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WLA:(Warner-Lambert) It's hot, it's a favorite of momentum cowboys, but one day soon they'll find a new favorite to hitch onto on the momentum highway. The company does have a strong product pipeline and hotselling new drugs, but all of the good news (and then some) has already been priced into the stock. Merely meeting earnings estimates, or a market downfall( we know, we've been told the market only goes up) could cause this highflier to get crushed. Trading at a frightening 47x this year's and 37x next year's e.p.s. estimates, with a PEG of 1.76(based on next year's estimates) we wouldn't do anything with this stock but abandon ship--or short it. 
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DELL:(Dell Computer) It seems like only yesterday that PC makers traded at a discount to the market because of fears that their products would become commodities. Now that those fears have come to pass these stocks trade at almost 2 times the market. Go figure! We have heard TV's talking heads gush forth that Dell is immune to the price competition and lower margins resulting from the emergence of the sub $1000 PC, but we don't buy it. For the average desktop user's needs a $1000 PC is adequate.  With the commoditization of the PC industry we fail to see how Dell will be able to stay immune to the pricing, and margin, pressure it's competitors are experiencing forever. Selling a commodity product in a super competitive industry, and trading at 51x this year's and 39.5 x next year's estimates, we don't see this superman of stocks being higher than it is now at this time next year. With a chart that rises straight up, and an equally sky high valuation,   this is our favorite PC maker--to short. (5/19/98)

We continue to remain short DELL. The recent earnings report led to a renewed flurry of buying, pushing the already overpriced PC maker's shares to 45 times next year's earnings. While we believe DELL can grow at 30% a year, one shouldn't lose sight of the fact that this company produces a product that has become a commodity in an industry with rapidly falling prices. We are also expecting a sharp slowdown in European growth rates later this year to negatively impact the entire tech sector. We expect a wholesale downward adjustment of tech earnings estimates to occur as 3rd quarter earnings reports begin to trickle in. Technically, the outlook has turned decidedly negative for Dell . The shares hit important Fibonacci resistance at 122 on Thursday and turned lower. A double top is forming on the stock's chart. We will be buying puts if the shares confirm the double top by breaking below 105. We will look for a break below trendline support at 97 to lead to a quick decline to the support zone at 90. We believe fair value for the shares is in the 75-80 range and look for DELL to decline to this level by year end.  (8/24/98)

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AMZN:(Amazon.com) While we believe AMZN is the premier online bookseller, both in terms of selection and service, we find the stock's stratospheric current price to be unjustified. Internet momentum junkies have pumped this one up to unsustainable valuation levels. AMZN has enjoyed rapid growth and now ranks as the 3rd largest U.S. bookseller but it is expected to be unprofitable both this year and next year. Competition in its home online market is heating up from both Borders and a rejuvenated Barnes & Noble site. We expect margin pressure to hurt results. We also view AMZN's sole focus on online retailing as a negative for future growth--there will always be many people who prefer to shop in a bookstore. With the intensified competition and a lessening of internet fever, we expect this stock to get walloped. The stock has recently entered a downtrend after a failed double top. This looks like a short to us. (5/22/98)

Amazon has  more than tripled in price over the past month. AMZN is now trading at 28 times trailing sales. The company's market cap is now double that of its much larger competitor Barnes and Noble.  We do not believe that the company's prospects warrant a larger market cap than Barnes and Nobel. Loss estimates have widened for this year and next as price cutting and increased advertising expenditures eat into margins. The share price is being driven solely by momentum players and a massive short squeeze. When the internet stock juggernaut ends (and investors return to their senses) this company will be recognized for what it is-- a bookseller, and will be accorded the multiple of a bookseller. We expect the rocket shot up to end soon. Technical cracks have appeared during the past month's rally. A negative divergence has appeared in money flow. RSI, stochastics,  and CCI are all showing divergences with price. ADX at 53 has flattened and turned down. We view a downturn in ADX from the above 40 level as a clear warning signal that a trend is about to change. We would sell now to take part in the swift decline that always follows financial manias. (7/6/98) 

Amazon wowed a few "analysts" this week when it reported a narrower than expected loss.  We were not among those impressed by the latest earnings report.  The company's loss grew to $-.84 from $-.24 a year ago.  Margins decreased to 21.1% from 22.7% because of increased marketing costs, increased discounting of products, and higher sales from the lower margined music line.  In normal (i.e. non-internet based) financial analysis, a company with increasing losses and decreasing margins is generally not a great investment opportunity.  The company announced that margins would remain under pressure because of increased spending on marketing and an expansion of its distribution facilities.   This expansion of its distribution facilities in order to build inventory moves the company closer to its store based rivals which also must maintain large inventories. It also takes away one of the main differentiating props which have been used to justify its lofty stock price. In short the company is moving closer to resembling a bookseller rather than the technology play it is often mistakenly identified as.  The company's shrinking margins could come under further pressure as competition heats up in the online world.  Onsale and Buy.Com have both announced plans to sell some items at cost.   The company itself is not worried about the decreasing gross margins and says they are likely to fall as Amazon adds new products.  In our view gross margins and profits still do matter, even for an internet company.  In a similar vein, rising competition is not a positive.  Amazon will remain in the red for the next few years.   Current estimates call for a loss of 93 cents a share this year, -$0.22 in 2000, and -$0.07 in 2001.  The rapid revenue growth that is often used to justify the high valuation levels has been accompanied by an even steeper run up in share prices which effectively discounts all revenue growth.  Amazon now trades at a Price/Sales ratio of 29.7 (versus 28 in July).  By contrast its 2 chief rivals, Barnes & Nobel and Borders trade at Price/Sales ratios of 0.90 and 0.61 respectively.  While the shares have dropped 40% from their January highs, they are still up for the year to date and have risen 270% from October's lows.  These shares remain overvalued and extremely vulnerable to a severe downward rerating when the current mania subsides and investors begin to value the company in line with other booksellers.(01/30/99) 

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AOL:  (America Online) We had to chuckle when AOL's CFO said the stock was undervalued and should be trading at $140 a share. If this logic were applied to the entire market (which it seems to have been lately), then every small biotech stock should jump from 12 to 85 overnight since one of them did. Suffice it to say, we find this stock very overvalued even after its recent correction. At 181 times this year's and 97.7 times next year's with a PEG (based on next year's estimates) of 2.1, this stock has no further upside. We see increasing competition as the search engine's position themselves as internet portals. We also find AOL's use of proprietary software to be outdated and a negative.This stock has entered a downtrend which will continue. The stock has broken its 21 day moving average which had acted as support 4 times since January. Money flow has turned negative and there has been heavy insider selling. Short this "undervalued" stock and enjoy the ride down.   
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GERMANY: The German market is vulnerable to a significant correction. The rally over the past year has discounted the benefits of EMU far into the future.   We expect the export driven German economy to be hurt by the recent freefall in the Japanese yen. Continuing weakness in Asia, and a higher Yen/Mark exchange rate will lead to earnings shortfalls among the big German exporters. We expect the DAX to decline to 5000. Any increase in the decline of the Asian economies could result in a DAX of 4500. Our two favorite German shorts are Deutsche Telekom and Daimler Benz. 

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DT (Deutsche Telekom): DT ran up from its January lows of 17 1/2 to a recent 28. We regard the stock as significantly overvalued.  DT is trading on a 1998 PE of 25.7, and at 24 times next year's estimates. The company is trading at a short inspiring PEG of 2.2 based on 1999 estimates.  We see several negative clouds on the horizon for DT. European telecom deregulation will hurt the company as more nimble competitors swarm into the bureaucracy ridden former monopoly's territory.  An unfriendly German regulatory climate will hurt the company's ability to raise rates.   Technically Dt has entered a downtrend. RSI diverged with the recent highs and is declining. ADX has turned down from 40.  Distribution is taking place in these shares as money flow has turned decidedly negative.  We expect DT to retest the 22 level it last visited in early April. 

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DCX (Daimler Chrysler):  The recent enthusiasm over the merger of Chrysler and DAI was overdone.  We expect significant problems as the two companies try to assimilate their disparate cultures and workforces. Cost savings from the merger will take longer to realize than currently expected.  We expect the declining Yen to have a significant effect on the competitiveness of DAI versus Japanese manufacturers.   DAI, at 23.9 times this year's earnings and 18 time's next year's, is trading at a premium to the auto industry. We expect the Chrysler Merger to hasten the disappearance of this premium. Technically, Daimler's picture is as ugly as it gets.  The stock has broken down from a head and shoulders top. Money flow is negative, and distribution is taking place. MACD and stochastics showed divergences on the recent high. The weekly ADX has turned down from 40.  We expect the first downside resistance to be at 85, with a first target of 75. It's time to trade this model in. 

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Last modified: April 16, 2001

Published By Tulips and Bears LLC