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When we turned to equity research firm Wall Street Strategies Inc. in New York, last April for a slate of stock picks for our Private Screening column, research analyst Rodney Smith gave us five technology infrastructure plays (firms that make components, products, and systems for computer networks) he felt had “sustainability” and “good fundamentals.” Caught in the vice-grip of a bear market, which was compounded by pressures from a recession, Smith’s selections collapsed, falling 58.61%. The S&P 500 lost 35% over the same period of time.
Smith has left the company since picking these stocks, and Wall Street Strategies sold its positions in all of the selections to avoid losses. “We often urge investors to take profits and use stop orders,” says Wall Street Strategies president and CEO, Charles V. Payne. He also says that the stock selections could have been more diversified to lessen the risk that comes with the very volatile technology sector.
With all of Smith’s selections significantly off their highs of last year, Payne advises investors to totally avoid INRANGE Technologies Inc. (Nasdaq: INRG), which makes fiber optics channel switches, and Peregrine Systems (Nasdaq: PRGN), an enterprise software manufacturer. Payne characterized INRANGE, which fell 39.82% from $22.50 to $13.54, as “shaky,” and says Peregrine Systems’ purchase of Remedy Corp. proved to be too costly and “an acquisition that hasn’t worked.” Peregrine Systems lost 59.34%, falling from a recommendation price of $22.75 last year to $9.25 in January.
Since EMC Corp. (NYSE: EMC) is still the top maker of memory storage and retrieval systems, Payne believes it is still “a good investment with an intermediate target of $21, and a long-term target of $27.” Recommended at $67.35 last year, the stock tanked 76.11% and was selling at $16.09 in January.
According to Payne, Sanmina Corp. (Nasdaq: SANM), the outsourcing manufacturing firm, is a buy. “As the IT world sees bigger budgets, and original equipment manufacturers (OEMs) look to save money, we think the company is well positioned,” he says. Selling for $20 in January, the stock had lost 51.52% off its recommendation price of $41.25 last year. He believes it could hit $31 over the long term.
Interwoven Inc. (Nasdaq: IWOV), the business-to-business software maker, is also still worth exploring. Off 66.24% from its recommendation price of $28.17, Payne says the stock, which sold at $9.51 in January, should be approached with caution. “We would like to see it above $10 before adding to our position,” he says.