SHREVEPORT, La., March 1, 2005 (PRIMEZONE) -- StockPickReport.Com (IARD #119079, http://www.stockpickreport.com - the web's only non-mainstream stock rating service), rates Applied Materials, Advanced Micro Devices Inc., Verizon Communications Inc., KLA-Tencor Corporation.
STOCKPICKREPORT RATINGS:
Applied Materials (Nasdaq:AMAT) - SELL
http://www.stockpickreport.com/abrating.php?sym=AMAT
Advanced Micro Devices Inc. (NYSE:AMD) - BUY
http://www.stockpickreport.com/abrating.php?sym=AMD
Verizon Communications Inc. (NYSE:VZ) - BUY
http://www.stockpickreport.com/abrating.php?sym=VZ
KLA-Tencor Corporation (Nasdaq:KLAC) - BUY
http://www.stockpickreport.com/abrating.php?sym=KLAC
Tuesday, February 29, 2005 StockPickReport Commentary "Cheap? Think Again."
When deciding what to write about for today's market commentary, it was impossible not to notice the dramatic stock rotation in the biotech sector caused by Elan Corp. (ELN) down $18.57 as of this writing, or 69.03%, and Biogen (BIIB) down $28.81, or 44.31%. These moves were just today! Anyone who was holding these stocks was faced with big losses this morning since even if you had a stop order entered, the stock would have opened well below your stop point. The shakeup in the Biotech sector today caused the Biotech index (BTK) to drop by 5.48% today. So, what happened?
"The biotechnology companies said in a news release that they have suspended supplying and marketing the drug Tysabri and advised doctors to suspend prescribing the medication. The companies also have stopped using the drug in clinical trials."
From http://biz.yahoo.com/ap/050228/ms_drug_suspension_18.html
So, these two companies have a joint effort in this drug. They both tank, while their competitors rise. Take a look at SRA, Europe's biggest biotech company:
http://finance.yahoo.com/q?s=sra
Up 17% today as of this writing. You would not have been able to get in on any of these moves either, since the open was already the high of the day.
OK, I know I know, so you are wondering where I am going with all of this--and believe me--I am going somewhere. Someone may look at ELN and say, "HEY! That stock's only $8.06 now. That's really cheap. I am going to load up on 5000 shares. It's gotta come back." I remember hearing this over and over again when I was a broker. I have had many people email me over the past several months about Krispy Kreme Doughnuts as well when it went below $10.00 per share. I always say, "Just because a stock is below $10.00 doesn't mean it's cheap." A $50.00 stock could be less expensive than a $3.00 stock.
Let me explain why.
Market Capitalization: What it is and why it's important.
Often I've heard people say, "I'd rather buy the $5 stock of ABC company because it's cheap. Not like that $80 stock of XYZ company." In reality, the $80 stock could be a bargain and the $5 stock could be grossly overpriced. You've got to look at a few things and the major one is market capitalization. Market cap is simply the number of shares outstanding (total shares of the company) times its current price. For example, the market cap of Microsoft is $274.29 billion. How is that calculated?
Take a look here: http://finance.yahoo.com/q/ks?s=MSFT
See where it says "Shares Outstanding: 10.88 B" So we multiply 10.88 billion Microsoft shares that are out there, by the share price of $25.20 and we get $274.11 billion (it's not always exact if the company has some shares in its own account)
On the other hand, the market cap of Elan is $3.11 billion. Its share price is $7.96 and it has 388.72 million shares outstanding. Every company that is listed has a different amount of shares outstanding. Remember, MSFT's stock has split many times to create all of those shares. So, billions of dollars worth of market capitalization were taken off of both Elan and Biogen today. I still have a newspaper headline from the year 2000 that read, "$1 Trillion Lost". That was one week in the markets, and they were talking about market capitalization.
So, if Microsoft's share price doubled, the company would be worth $550 billion. If the share price quadrupled, it would be worth about a trillion. I, for one, don't think Microsoft will ever be worth a trillion dollars. That ship sailed a long time ago. In fact, if you hold shares of Microsoft, you should question why. It hasn't done anything for years.
The classic "cheap" stock that seems to always get "cheaper" is Nortel. "But it's only at $2.68/share!" Yes, but its market cap is $11.44 billion. The stock could go down to $1.00/share and the company would still be worth billions; not very cheap at all.
Here is how the market caps are grouped into categories. Many mutual finds specialize in only one of these categories.
Super Cap: Market cap of $200 billion and greater Large Cap: $10-$200 billion Mid Cap: $2 billion to $10 billion Small Cap: $300 million to $2 billion Micro Cap: $50 million to $300 million Nano Cap: Under $50 million
You will often get the fastest moves in the Nano, Micro, and Small Caps. Often Mid Caps will give you good moves as well. I think I have only ever made two super cap trades. Those stocks just don't have the ability to move fast enough. They are good for buying options on, but a 10% move in a $200 billion market cap stock would be a $20 billion increase in the value of the company. That's hard to come by. For your interest, Exxon Mobil recently passed GE as the largest company in the U.S. at $411.66 billion. The all-time record was Cisco in the year 2000. It hit $600 billion. Now, Cisco is at $113.19 billion.
So next time you hear about a company that's "cheap", take a look at its market cap.
If you have questions or comments, please email don@stockpickreport.com.
For More Commentary Go Here: http://www.stockpickreport.com
All commentary written by Don Harrold, Senior Analyst.
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If the links to our ratings above do not work, please use these:
Applied Materials (Nasdaq:AMAT) - SELL
http://www.bigtimenews.com/russell1000/AMAT-Stock-Quotes-News-and-Research.php
Advanced Micro Devices Inc. (NYSE:AMD) - BUY
http://www.bigtimenews.com/russell1000/AMD-Stock-Quotes-News-and-Research.php
Verizon Communications Inc. (NYSE:VZ) - BUY
http://www.bigtimenews.com/russell1000/VZ-Stock-Quotes-News-and-Research.php
KLA-Tencor Corporation (Nasdaq:KLAC) - BUY
http://www.bigtimenews.com/russell1000/KLAC-Stock-Quotes-News-and-Research.php