Regular readers of this column know that my primary strategy is to find stocks that climbed into unreasonable heights only to crash under the weight of investor flipping--or post-IPO profit taking. The problem with this strategy is that the field of such stocks in the technology area is rather limited. This month, I hit the wall and simply could not find such a stock that is also poised for an ascent behind solid technology. Part of the reason for this is the bear market. While several stocks' charts follow this profile, I'm not convinced they will recover any time soon.
So this month I'm rolling out a new strategy. It's actually an old strategy; I'm just repurposing it for this column. The bear market has thrashed some real dogs, but it has also caused several solid tech stocks to become undervalued. At least until I feel confident that the NASDAQ is ready to return to its bullish ways, I'm going to look for stocks that appear seriously undervalued in the NASDAQ market. I think Symantec (NASDAQ: SYMC) fits this profile perfectly, and here's why.
As this month's Ethics column suggests, few things are more important to the success of the Internet than security. Among other things, if an e-commerce company can't secure its servers from those who would steal credit-card numbers, consumers will never gain confidence in e-commerce.
But e-commerce is just the most publicized application of security software. It is at least as important for general e-business as it is for the e-commerce niche. Companies are often more concerned about the security of their back-end systems for the sake of their vital corporate secrets than for the sake of consumers who buy online at their Web stores. For these reasons, every company that does any kind of business on the Internet is spending a large portion of its IT budget on improved Internet security. Because of this, few industry categories are as close to a sure thing as the security sector.
Several companies offer products and services in this area. But only one has the track record to lead the pack--Symantec. The company has spent more money on upgrading its research and development efforts than any of it's competitors. The result: a state-of-the-art lab that enables live virus updates and other real-time security support-puts Symantec in a class by itself.
Despite the strength of the company and its market position, its stock has fallen on hard times of late. I attribute this to the general malaise in the NASDAQ market. Just as many companies were seriously overvalued late last year when the NASDAQ was going crazy, so many companies now are undervalued as investors follow the herd and sell off all technology stocks.
Not coincidentally, all but one analyst polled agrees with my assessment at the time of this writing. Eight out of nine analysts rate the stock as a strong buy; the ninth lists it as a moderate buy. While the stock has traded as high as $80 per share this year, it is trading in the low 40s at the time of writing. I expect it to climb into the 50s before this article goes to press and climb up into the low 70s within the next six months. This is a more than acceptable margin in the midst of a bear market. I don't see a lot of downside here. Even if it takes a short-term hit, it is a good long-term value.
My advice to online traders: Buy moderate amounts of this stock and hold on to it for at least six months. Symantec is a long-term winner whose stock can go nowhere but up.
James Mathewson
