It Is Darkest Before Dawn

The index (the CBOE Volatility Index) is breaking all records, and when your panic-stricken mother-in-law calls you to ask how much money she has lost on what she's got in her checking account, you realize that the panic has reached fever pitch, and perhaps the bottom really is here, or just around the corner.

Those who believe that history repeats itself would do well to make a note of October 9, (which this year is the day on which Yom Kippur falls), since it was on this day in 2002 that tech stocks slumped to their low, in the bubble whose implosion began on March 10, 2000, when the Nasdaq began its collapse from a closing high of 5,049 points at the close to a low of 1,114.

Last week was exceptionally tough, with the indices nosediving on Monday after the House of Representatives voted down the US government rescue plan, followed by a further round of falls on Friday after the House finally gave the amended version of the plan the green light. The official excuse given by traders for the sell-off, following the approval of the plan, was that it was "too little, too late." The unofficial explanation was that in a bear market like the one at present, you sell into sharp gains, while in a bull market, you buy on weakness. By yesterday morning, the Nasdaq had lost 26.6% since the beginning of the year, the S&P 500 was down 25.1%, the Dow Jones was down 22.2%, and the Russell 2000 Index was down 19.1%.

"This time it's different," are the four most dangerous and frightening words on Wall Street, in times of boom and bust alike, and Tobias Levkovich, chief US equities strategist at Citigroup (C), found himself hearing them in the dealing rooms yet again. He points out that they were used as well a year ago, when prices of oil, fertilizers, and other commodities and food products were soaring. In times of euphoria - as in times of anxiety - investors have a tendency to deny the normal business cycle, and Levkovich remembers hearing those words in the slump of 2001-2002 as well.

He recalls how just a few months before the gains of October 2002, weary investors told him despondently that "this time it's different" and the market was lost since there was no chance of seeing any profitability at a lot of companies, not least those in the technology sector which had collapsed and would remain on the floorboards for the next decade at least. As mentioned earlier, in October 2002 the market began its gallop, with the S&P 500 hitting an all-time high, and company profit margins breaking a 40-year record. And it wasn't until 2007 with the explosion of the financial stocks bubble that this bull finally came to a halt.

Levkovich believes that while the crisis may not be behind us completely, once again, as was the case in 2002, those people now voicing apocalyptic forecasts over the prospects of the equities market in the long-term will soon be eating their hats. He also admits that he had to eat a big hat himself at the beginning of the year, when he failed to realize just how deep a mess the financial sector was in.

In any event, his models indicate that we are due to reach the bottom in the next few weeks, and he points out that from the aspect of profitability and balance sheet strength, the situation of companies today is incomparable with what it was in previous crises, such as the one in 2000, or the periods of high inflation in 1973/4 and 1979/80.

Click Software and Attunity - rising from oblivion

With the next results season almost upon us, and giants in my portfolio tracked by "Globes", such as Apple Inc. (AAPL), Intel Corporation (INTC), Cisco Systems Inc. (CSCO), eBay Inc. (EBAY), taking a relentless hammering because of massive sales, principally by the hedge funds, I have found some consolation in the stocks of two small software companies, which I thought last year that it was only a matter of time until they eventually disappeared. The first, mobile workforce optimization solutions company ClickSoftware Technologies Ltd. (CKSW), surprised with better than expected guidance for the third quarter, and the other is enterprise software company Attunity [ATTUF.OB], which is extending its business relationship with Microsoft Corp. (MSFT).

ClickSoftware specializes in software for the optimization of workforce management in large companies and it would appear that with the recession set to take hold, there is an increasing need for its solutions in order to save on manpower and related costs such as transport and fuel. It now transpires that while its share was languishing at a record low of $1.80 a month ago, the company itself was busy selling far more than the capital market thought they were capable of. ClickSoftware's sales for the third quarter will come in at around $16 million, 60% more than in the corresponding quarter in 2007 and 45% more than in the second quarter of this year.

We will have to wait until the results on October 29 to see how much of these extra sales will find their way down to the company's bottom line, but it is already clear, judging from its sales multiple, that its market cap - $75 million - is exceptionally low. ClickSoftware has $25 million in cash, no debts, and it will end 2008 with $54 million sales - a 35% increase year-on-year - assuming these are within the upper range of its new guidance. Should there be a marked rise in net profit for the quarter following the spike in sales, the company's share price is likely to climb rapidly, given its low market cap and its current cash-in-hand balance - which amounts to one third of its current market cap.

Attunity, under its new CEO Shimon Alon, who took over from Aki Ratner at the end of the second quarter, has launched a new infrastructure product together with Microsoft, following the original equipment manufacturer agreement [OEM] the two companies signed in January this year. The product in question is a high-speed connector for Oracle and Teradata databases that has now been adapted for Microsoft's SQL Server 2008. It appears that there is now a critical need for the collection of data in real time, especially by managers in large organizations who have to make prompt decisions during the course of ongoing business,. One can assume that in troubling times like these, managers at financial institutions would be glad to have software solutions that can deliver real time data direct to their desktops.

When investigators begin their inquiry into the failures of the credit rating companies, for example, they will find that they were based largely on past data that were not relevant to the current state of the assets they were supposed to be rating, and we now know the outcome. The database market is shared between a number of giants such as Oracle Corp. (ORCL), SAP AG (SAP), Microsoft, IBM Corp. (IBM), and a few more smaller companies, but it transpires that they - the databases - have difficulty "talking to one other", so moving data from one system to another is difficult. The Attunity solution, launched yesterday, will help Microsoft customers access data in Oracle databases.

Attunity is currently in the process of extending its working relationships, primarily those with Microsoft and Oracle, on database infrastructure applications and at the same time it is also building customized applications for customers in different sectors. The company, which currently has a market cap of $6 million and employs 60 people, has $12 million in annual sales, half of which is licenses and the rest services. In the last two quarters it managed to reach operating break even (on a non-GAAP basis), after a number of years of heavy losses.

The substantial investment it has made over recent years, particularly in the development and marketing of its new platform, InFocus, has left Attunity with no cash. One may assume, therefore, that the company will need to raise funding in the coming year, should there be no significant increase in sales. On the other hand, should it hold its own in its partnership with the two giants Microsoft and Oracle, I believe that one of them will make it an offer it can't refuse, since Attunity's core technology - real time data gathering - which it has been developing over the last 16 years, has found itself in a market precisely at the very moment when the demand for its solutions is at its peak.

Disclosure: None

Published originally by Globes [online], Israel business news - www.globes.co.il

© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on SeekingAlpha with full permission.

Comments

[Howard_T:]

An old friend of mine has 2 sayings that seem to apply:

"In front of every silver lining, there is a cloud."

"It's always darkest just before things turn completely black."

I think that the first of these is true, but the second is not. The problem for me, within 30 days of retiring from my job, is "How long will I have to hang on?" The lessons of the past seem to indicate that once the recovery starts, we should be back where we started within 3 to 5 years. Two questions remain. When will the recovery start and will government screw it up with well-intended but incorrect policies? Let us hope that Mr. Cohen is right in his assessment.

2008 Oct 08 09:12 AM

[Rhett:]

Sounds like an ever so soft sell for Attunity.

2008 Oct 08 11:43 AM

[Kelly Liebe...:]

I received this in my email today:


Friends,

Remember; when you come to the edge of all the light you know and are about to step off into the darkness of the unknown, faith knows one of two things will happen; there will be something solid to stand on, or you will be taught how to fly.

Have a GREAT day.

Owen
fragerfactor.com

2008 Oct 08 01:35 PM

[AlexS:]

Or the new rule: governments will step in to take over the situation just when the crisis was coming to an end anyway.

2008 Oct 08 03:27 PM

[bbowen7:]

One good data point in the above - corporate balance sheets are strong. Companies will act cautiously, but they will live to fight another day. To the extent that some will wash out, look for a big uptick in strategic M&A activity when it turns.

2008 Oct 08 05:20 PM

[kurt walter:]

Big Sale going on. Don't you like big sales?

2008 Oct 08 08:30 PM

[Joey:]

Oracle's stock is down over 35% in two months. That is two months after the announcement of an $83.6 million dollar salary to the CEO. Stockholders - this is your money. The Board is suppose to represent you - not line the pockets of the CEO with your money, your children's money, and your grandchildren's money. Fire the board.

2008 Oct 10 11:27 AM

[anarchist:]

Actually Howard_T I think your idea of a 3-5 year recovery is for a mild recession. What we are seeing here in the market is a crash. Crashes of the past have taken 13 to 16 years to recover and in the case of the 29 crash almost 30 years.

2008 Oct 10 10:03 PM