Nortel fever is back

Retired after 37 years at Stelco Inc., my father offered some advice the other day. “”If you have $1,000 lying around, you should look at them.””

Hmmm… Stelco had just reorganized upper management and sought creditor protection. The former steel giant’s stock had dipped to just 85 pennies.

My

decision was a no brainer. I didn’t have a thousand clams. Nor did I feel confident with the advice of someone who still cherishes the Bre-X stock certificates he once considered gold, literally.

Now if my dad had said Nortel, then I’d consider selling my vintage Gino Vanelli albums to fund an investment. Well, shouldn’t I?

Everyone else apparently is. Nortel fever is back, along with rapture over many other technology companies. The slimmed down telecom behemoth recently regained its title as the highest valuated company in the country, thanks to a stock price that has nearly doubled in 2004, and quadrupled in the past 12 months.

Nortel’s stock was boosted by fourth quarter results that exceeded expectations. Then it offered relatively optimistic outlooks for business and growth, the likes of which haven’t been heard for some time. That was enough to perk up the ponytails of investment cheerleaders, who poured money into the Brampton, Ont.-based company to the tune of “”Gimme an N! Gimme an O…””

Essentially, Nortel says more organizations are buying its equipment and that trend will continue with moderate gusto in the near future. Juniper had the same rosy outlook earlier in January. In fact, they’re so bullish, they dropped US$4 billion to acquire security company NetScreen Technologies.

But wait. Telecom neighborhood bully Cisco then weighed in with higher than expected revenues, indicating improved sales, but with lukewarm guidance on how eager customers were to buy its equipment. CEO John Chambers said business leaders were “”surprisingly cautious”” toward capital spending. Oops. That was like a cold shower on the overactive hormones of excited investors. Cisco’s shares suddenly went soft.

So what’s the stock market trying to tell you? Is the enterprise telecom market going like gangbusters or is this a mini tech bubble that risks bursting?

The answer: the stock market can’t tell you. It mirrors the optimism and pessimism of investors, not necessarily factors in the real world marketplace. The NASDAQ and TSX don’t simply reflect an analytical assessment of a company’s fundamentals. Stock success is skewed or even superceded by buying and selling decisions based on emotions. (An RBC Dominion analyst essentially admitted this last fall in a report trying to explain Nortel’s stock rise. It was entitled: “”Stop Pulling Your Hair Out … Maybe Valuation Just Doesn’t Matter””).

Maybe these financial analysts and investors should be talking to resellers and VARs who are on the front lines talking directly to customers. The numbers and amounts on your customer invoices leave little room for emotion. If you’re selling more Cisco routers than before, does the stock price make a difference to you or your customers? Will their networks work better or worse? Likewise, do Nortel’s switches transfer packets faster when its stock price goes up?

Most economists and industry analysts such as IDC Canada say things are headed in the right direction. But how quickly and for how long should not be determined by looking at the NASDAQ winners and losers. Better to ignore the cheerleading and booing reflected in the stock prices and stick with your own fundamentals… Unless you have $1000 to gamble.

Then you should talk to my dad.