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ANALYST WATCH: Experts give their best short-term picks

So you've taken all your money—what little remains—out of the market but you're itching to fire up that E-Trade account. You've lost your nerve but you know that you should be buying while prices are so low. But what should you buy?

This week, we put that question to some sell-side analysts, a group that rarely passes on an opportunity to laud the stocks they follow on a day-to-day basis.

Inter@ctive Investor asked analysts from a variety of sectors to give their best short-term picks—for the next three to six months—and also some of the names they're not terribly excited about in the short run.

When this question was posed to analysts at this time last year, most couldn't say enough good things about all the stocks they covered. It seemed that every stock was guaranteed to deliver 50 percent gains or more by year's end.

This time around analysts were far more selective and, though they liked their picks, weren't especially enthusiastic about any of them at this juncture.

  • Glen Ingalls, Wit SoundView

    Ingalls identified Brocade Communications (Nasdaq: BRCD) as his best pick. Trading at $74.13, the stock is well off its 52-week high of $133.69 set in October and trades at a price-to-earnings ratio of 266.

    "The SAN market still has a long way to grow," Ingalls said. "Brocade's the best-positioned company in this group and is growing at an astronomical rate. It holds a dominant share position and is actually setting prices in this market."

    He maintains a "strong buy" rating on the stock.

    Ingalls also likes Network Appliance (Nasdaq: NTAP), which topped analysts' estimates in its third quarter this week and essentially left its guidance for the fourth quarter and fiscal 2002 unchanged.

    Network Appliance bounced off its 52-week low following the earnings report and closed at $38 Friday.

    He's not too high on McData (Nasdaq: MCDT) or Computer Network Technology (Nasdaq: CMNT), two stocks that have taken a beating of late.

    McData shares were trading at an all-time low of $34.81 Friday, well off its high of $141.38 set back in September. Computer Network Technology was perched at $14.13 after losing more than half its value in the past two weeks.

  • John Corcoran, CIBC World Markets

    Corcoran was the most enthusiastic of the bunch this week, touting the prospects of Nuance Communications (Nasdaq: NUAN) and SpeechWorks (Nasdaq: SPWX), two companies that are leading the charge for speech-activated services for wireless networks.

    "These are highly volatile stocks and have been more so lately because they're kind of lumped in with the Internet stocks," he said. "But eventually a staggering amount of traffic will either originate or terminate on a wireless platform, making these companies all the more attractive."

    Nuance shares were trading at $37.75, down from a high of $182 set in August. SpeechWorks, trading at $28, is well off its all-time high of $108.50 also set in August.

    Corcoran doesn’t think much of Yahoo (Nasdaq: YHOO) or RealNetworks (Nasdaq: RNWK) at this point, trading at $28 and $8.25 a share, respectively.

    "They're both good companies with savvy management teams and very good technology," he said. "But they're both in a transition period. We want to see if Yahoo can diversify its revenue away from advertising sources and we're a little concerned about the increasing competition RealNetworks is seeing from Microsoft."

  • Kathleen Heaney, BlueStone Capital

    Heaney offered a refreshing outlook. At a time when even the most bullish Net analysts have turned their backs on the dot-com universe, she named Alloy Online (Nasdaq: ALOY), the Web site catering to the so-called Generation Y demographic; (Nasdaq: HOTJ), the online employment service site; and Yahoo as her top picks.

    Alloy Online trades at $12.38, down from its peak of $20.25 last February. Yahoo, at $28, is fighting layoff rumors and closed at $8.25 Friday, well below its all-time high of $32.75 set in March.

    "Yahoo is a survivor," Heaney said. "I believe the advertising model can work just as it did for television, radio and print. It's already doing $1 billion in sales and at its current price. I like it a lot."

    "I like Hotjobs' business model mainly because it has so little exposure to dot-com advertising," she said. "They have a nice recurring revenue stream and an impressive customer list including Microsoft, Goldman Sachs and Merrill Lynch."

    Heaney cited NBC Internet (Nasdaq: NBCI), at $2.81, and (Nasdaq: ASFD) as two stocks unlikely to provide much upside in the next three to six months. closed at 69 cents a share Friday.

    "'s holiday season was OK, but now they have to struggle through three more quarters before you get another good quarter," she said. "I've got a neutral rating on NBCi right now. I don't think we'll see anything out of them for a while."

  • Jay Vleeschhouwer, Merrill Lynch

    Vleeschhouwer named Cadence Design Systems (NYSE: CDN) and Synopsis (Nasdaq: SNPS) as his top picks along with Adobe Systems (Nasdaq: ADBE)

    "They're two market leaders in the electronic design software and services market," he said. "We've been increasingly high on this market since the latter part of 2000. Customers are accelerating their bookings because they need to upgrade their chip design technologies and methodologies."

    Cadence shares closed at $26.61 Friday, down from a 52-week high of $32.69 set last month. Synopsis finished at $49.50, down slightly from its high of $56.50 also set in January.

    The only stock Vleeschhouwer identified as a potential bust in the short-term was Macromedia (Nasdaq: MACR) which lowered its sales targets and announced a $360 million merger with Allaire (Nasdaq: ALLR).

    We'll see just how much these analysts love their picks when we check back with them this summer.

    So this is what it's come to
    Desperation might not be a strong enough word to describe the laughable actions of one Internet-related firm this week.

    I don't want to mention the company or the individuals involved mainly because they're busting their butts to save the ship and, believe it or not, I don't derive any pleasure from embarrassing people trying to make the best of a bad situation.

    However, the story must be told.

    Earlier this quarter, the company warned that it would post a larger-than-expected loss in the quarter. This company has yet to turn a profit and likely won't reach profitability until at least fiscal 2003, assuming it's still in business at that point.

    Well, it did post a huge loss in the quarter. It also announced significant layoffs and slashed its sales outlook for fiscal 2001. On the bright side, the company's CFO said it had enough cash to make it through fiscal 2001 but might need more dough in 2002.

    You get the picture.

    Well, it turns out that analysts--those few who remain--following the stock failed to lower their estimates in the time between the warning and the actual earnings release. Or perhaps First Call Corp., which tracks analyst estimates, dropped the ball and failed to update its Web site.

    To say there was widespread apathy for this company's quarterly results would be a gross understatement.

    So when this troubled company posted a pro forma loss of more than $100 million in the quarter, it actually met its own revised estimates but fell short of the official consensus number as reported by First Call.

    In the story, we reported the company missed analysts' estimates, was laying off a good portion of its staff and that its sales in fiscal 2001 will be much lower than previously anticipated.

    I came into the office the following morning to find a voice message from the company's spokesman. He was very upset that this site, along with most other news outlets, reported that his company missed the official number in the quarter.

    He wanted the story changed.

    What he didn't mention, as he was sitting next to the CFO, was the fact that it lost 12 cents a share more than analysts originally predicted before the warning.

    While the company did meet its own widened loss estimate, it still missed by a mile.

    If this would have happened a year ago, you can bet the stock would have jumped 20 percent or more simply because it only lost as much as it said it was going to lose.

    The days of patting Internet companies on the head for living up to their own lowered expectations are over.