America's Consumer Price Index fell in October. Industrial output continued to go down, and Applied Materials and Dell Computers put out disappointing financials. But the Americans continue to post achievements in Afghanistan, the US Administration keeps doling out aid, and investors, hoping for a rally in shopping and the aviation industry as Thanksgiving Day draws near, still believe that a recovery is just around the corner.
The optics sector revived on Friday. JDS Uniphase jumped, together with Juniper and, needless to say, Lucent. Lucent rose to $8.21 because it sold its optical-fiber division to Japanese company Furukawa for $2.3 billion in cash. The price was far lower than originally planned, but $2.3 billion in cash have definitely chased away the specter of collapse that hovered over Lucent. If the communications market is rallying, it’s inconceivable that Lucent should be left out.
As usual, Israeli stocks went along with prevailing trends. MRV Corporation (MRVC) and its subsidiary, Luminent (LMNE), surged 20.6% and 21%, respectively. Whenever the optical market goes up, MRV and Luminent rise. Why? Because MRV is identified with the development of the optical market, and is also a leading player. The best proof of this is Luminent, which graduated from MRV’s incubator, and is now heading back there.
MRV was traded at $2.25 at the end of September, when it started going up. We recently read somewhere that MRV’s dream of becoming a flotation machine evaporated when it had to call off the IPO of one of its subsidiaries last week. People who write such things would do well to read what they write and perhaps do a little thinking as well. MRV cancelled the flotation of its subsidiary not because it was the end of the dream, but because the price was unsuitable. And it was right to do so. If the optics market is rallying, why float the subsidiary? MRV still has some money, and we’ll see what the future brings.
We think that MRV’s management is functioning on Wall Street as if it was running a veteran player, and the MRV team is displaying extraordinary expertise in the process. Just take a look at the stock price. The stock hit a low at the end of September, but so did the entire market. The minute the market revives, investors remember MRV, especially institutional investors who just love this company, despite its losses.
People have reached the conclusion that Amdocs (NYSE: DOX) is beginning to limp. Great. This conclusion was reached shortly after people decided that Comverse Technology (Nasdaq: CMVT) was in really bad shape, and after the circulation of supposedly substantiated rumors that Lumenis (LUME) was having difficulties selling its wares. That didn’t stop these three leaders’ stocks from soaring by over 30% in just a week or two.
This brings us to aviation companies, which had a really great time last week. Are US investors drunk, or do they know something that the pundits don’t? The answer to both question is, "No." So what sent aviation stocks up all of a sudden? There’s no doubt that all airline companies (except El Al) are in big trouble, for the simple reason that plane occupancy is still very low. The stocks went into a tailspin, but haven’t yet reached what an economist would call an economic level. So why did we see this sudden takeoff? It appears that US investors' minds don’t work in the same way as those of their counterparts around the world. Thank goodness for that. If US investors didn’t have a different mindset, Comverse would have been traded at $10 and Amdocs at $15. As for Check Point (Nasdaq: CHKP), it wouldn’t have soared from $19 to $40 in just a single month.
How does the US investor’s mind works? He tells himself: “Airline companies' stocks have plunged. It’s irrelevant whether or not they’re still expensive. What is relevant is whether they’re restructuring and whether people will start flying again. I can’t decide whether American Airlines is worth $16, as was the case at the beginning of last week, or $20, where the stock was trading at the end of the week. Why? Because the stock fell to $16 on developments that weren’t related to the company’s turnover, but to extraordinary events affecting its business. But I believe people will start flying again. In that case, $16 and even $20 is good enough for me to get in, especially if fuel prices are diving and the US government is relieving companies of the burden of airport security.”
The House of Representatives swiftly passed a resolution, saying that the US government would take over airport security. Meanwhile, fuel prices are plummeting, and even OPEC sources are talking about $10 per barrel.
The rise in airline companies’ stocks is an astonishing development that proves just how much weight US investors attach to the future. Thanksgiving Day, which falls at the end of this week, is always peak time for airline companies, because everybody flies to visit everybody and eat turkey. Investors apparently believe that this year, people will fly as usual. Let’s wait and see who's right.
The above recommendations were made by a person/s working in the investment industry who may hold positions in securities mentioned in the column. This column should not be taken as advice to buy, sell or continue to hold any securities, and anyone acting on the advice of this column does so at his or her own risk.
Published by Israel's Business Arena on 18 November, 2001