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Two Techs To Avoid In 2009

Posted: Dec 31, 2008 10:01 AM by Glenn Curtis

Tickers in this Article: BBY, CC, INTC, AAPL, AMD

I've made a list; I've checked it twice and the two stocks that made my naughty list this year are: Advanced Micro Devices (NYSE:AMD)and Apple Computer (Nasdaq:AAPL).

AMD Vs. the Intel Grinch
California-based chip maker AMD has fought a good fight against larger rival Intel (Nasdaq:INTC). It's done a commendable job building a brand name and developing competitive technology; however, it faces several huge challenges in 2009 that won't be so easy to overcome.

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Wall Street is expecting AMD to generate a load of red ink in 2009. The current expectation is for a loss of $1.03 per share. Frankly, I think that some may look at that, and then look at Intel, which is currently expected to be in the black, and the end result is that Intel will win the popularity contest. (For more on analyst expectations, read Analysts Forecasts Spell Disaster For Some Stocks.)

The recession means that many retail and institutional investors will be drawn to size and perceived stability. Here AMD loses again: Intel has the larger market cap and it's currently expected to generate revenue in excess of $30 billion in 2009 according to Yahoo Finance. Meanwhile, AMD is expected to generate less than $6 billion.

Fourth quarter guidance didn't help matters. AMD now expects a 25% drop in Q4 revenue versus Q3 of 2008 revenue, not including process technology license revenue. The company cited weak consumer demand as the problem. AMD is expected to release numbers on January 22. It will be worth watching to see if the company can beat these lowered expectations, but, to be frank, I don't see things getting dramatically better in the near-term and that's why I'm steering clear.(For related reading, see Can Earnings Guidance Accurately Predict The Future?)

Rotten Apple?
I was bullish on Apple's prospects as recently as October, but I've changed my mind. True, Apple still offers some awesome products ranging from the iPod to the iPhone, but demand for those pricey items could lag in the coming year thanks to the economy. Plus with electronics retailers like Best Buy (NYSE:BBY) and Circuit City (NYSE:CC) advertising other electronic “toys” such as MP3 players and cell phones at low prices, there's bound to be a lot of competition for consumer dollars.

The second problem I have with Apple is that the stock currently trades at about 18.9 times the current year estimate of $5.28 per share. This is too rich for me.

Bottom Line
My advice to investors that want to avoid a lump of coal in their portfolios this Christmas is to avoid AMD and Apple for now.

By Glenn Curtis

Glenn Curtis started his career in the 1990s as an equity analyst for a regional firm in New Jersey. There, he covered companies in the technology, entertainment, and gaming industries. Curtis has since worked as a financial writer at a series of both web and print publications, including TheStreet.com and Registered Rep Magazine. He has held his series 6,7,24, and 63 securities licenses.

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