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Tech Industry

Apple, others see stock spike

Shares in Apple, among other tech stocks, jump out of the chute in 1998's first day of trading.

Apple (AAPL) shares jumped out of the chute in 1998's first day of trading, fueled by short-sellers looking to cover their profits as rumors of a merger circulate.

The struggling computer maker is not the only technology issue to get a double-digit pop today. Other companies that got belated holiday good cheer include Applied Magnetics (APM), Quarterdeck (QDEK), Corel (COSFF), and Informix (IFMX).

Apple's stock, which ended the year trading near its 52-week low, rose 23.8 percent to close at 16-1/4, up 3-1/8 over Wednesday. The number of Apple shares trading hands was more than three times the average daily volume.

"There's a rumor out there that since Apple is having trouble finding a CEO, it'll merge with another company rather than remain a standalone. The rumor is that IBM is looking to pick up the company since [Apple's] stock is trading so low," said one Wall Street watcher.

He added that since the stock is moving up, a number of short-sellers are looking to lock in their profits by snapping up shares before the price rises further. That is also contributing to the heavy volume and rising price.

"I don't think there is anyone out there buying the stock for [Apple's financial strength]," he noted.

Meanwhile, analyst Richard Schutte of Goldman Sachs said Apple wants to reach a break-even point, with the next test being to grow its revenue base.

"The question is what will drive it up," he added.

Schutte noted that Apple's move to direct sales of its Macintosh systems is eating into a portion of the sales that would have otherwise been generated by its resellers or retailers.

Apple may find a new revenue source if it also sold Windows-based machines through its direct channel, he said. This would keep the resellers and retailers happy since it would not compete with their Mac sales, and it would be cost-effective as 80 percent of the components for the Mac can be used in a Windows-based computer.

Analysts say that the short-selling seen with Apple--coupled with pressure on investors to sell losing stocks for tax reasons--create what is known as the "January effect."

"Stocks that left a year on a low typically recover somewhat in the month of January," explained analyst Ted Flomanhaft, of L. Flomenhaft & Company. "This is because of the absence of the selling pressure that is caused by tax considerations."

The January effect can help boost the stock of companies that are both financially strong but hit by tax-related selling, as well as ailing companies that are ripe for what some analysts call "bottom-feeding."

Applied Magnetics was a recipient of the former today, up 12.5 percent at the market's close to end the day at 12-3/8, up 1-3/8 over Wednesday. The drive maker reported annual net profit of $96.1 million for 1997 on December 19, compared with $32.1 million for 1996. Sales in 1997 were up 43.5 percent from the previous year.

"Tax selling pressures in the month of December depressed the stock beyond where a lot of people though it ought to trade," Flomenhaft said.

Flomenhaft also pointed out that Applied Magnetics' competitors--Seagate, Quantum, and Western Digital--all experienced modest gains this morning. "I know of no fundamental reason why the disk drive industry would be in any better shape today than in Q4 1997," he concluded.

Quarterdeck, which was up 17 percent today, closed at 1-29/32, up 9/32 over Wednesday. The company was a beneficiary of the new year, as well as of a recent announcement that several key senior executives and board members personally had invested in the company's stock.

"It's a vote of confidence in the stock that they are willing to write a check out of their own pocket," said analyst Terrence McCrary of Auerback, Pollack, & Richardson of the purchase news. He also pointed to alleviated tax pressures as a reason for the stock's rise today.

"Quarterdeck has had problems, but even for them the stock was oversold. It's a pretty retail stock with not that much institutional holding, so it is more susceptible to the tax-selling pressure."

Enterprise software company Corel also experienced a gain of over 19 percent today to close at 1-15/16, up 5/16 over Wednesday. That performance comes on the heels of reporting a net loss of $95 million, or $1.43 per share, on sales of $44 million for the fourth quarter of 1997. The stock closed at 1-15/16.

In sharp contrast to rival Sybase's (SYBS) loss of over 25 percent of its value in morning trading, Informix posted gains of over 18 percent to close at 5-5/8 today, up 7/8 over Wednesday.

Informix, among other reasons, was also lifted by the news yesterday that brokerage Hoak Breedlove was initiating coverage of the database company as a "hold." The company also named Leslie G. Denend to their board of directors yesterday.

Analyst Brian Eisenbarth of Collins & Company said that Informix was an attractive stock to "some bottom-fishers looking around the tech sector for companies being beaten down. Informix is definitely on that list. Even at 5, it still looks pretty cheap."