After some rough handling by Wall Street last year, technology stocks are once again hot.
Too hot, apparently, for many corporate insiders.
Many owners and managers of high-tech companies sold shares during the first-quarter revival, according to Disclosure Inc. in Bethesda, Md.
Insider selling is a warning flag for a sector that has led all others this decade in growth and job creation. Stock analysts believe such selling is one of the first signs of faltering corporate performance.
"High-tech insiders see some difficult times ahead in the next couple of quarters," says Craig Columbus, Disclosure's vice president of research. "The first chance managers got this year, they took a profit. No one was waiting for higher highs or a sustained tech rally."
At Intel Corp., an industry bellwether, insider selling spelled trouble. Eight Intel insiders in February sold 855,512 shares at prices ranging from $86 to $87, says Disclosure. In March, the chipmaker's stock sagged to about $72 as investors realized profits would come up short. This month, Intel announced a 36 percent profit decline for the first quarter, blaming a temporary inventory adjustment.
Analysts say the high technology sector confronts at least two quarters of sub-par profits because of big hurdles:
* Profit margins for makers of personal computers are shrinking as sub-$1,000 machines grow in availability and popularity.
* US companies during the next several quarters are expected to cut high-tech purchases. They are shifting tech budgets toward eradicating the potentially devastating Year 2000 problem (many older computers can't recognize the year 2000).
* The stagnant economies in East Asia mean weaker demand for US technology products. And their eroded currencies have made their own high-tech products cheaper and more competitive in America.
"1998 looks like a transition year for high technology," says Paul Johnson, senior technology analyst at BancAmerica Robertson Stephens. A "cleansing from the competitive environment" will shave earnings growth to the low teens, he says.
Still, many investors remain optimistic about the long run. Intel shares, for example, rebounded to $84 by the middle of last week.
And some analysts say insider selling does not necessarily betray boardroom pessimism.
"Anytime there is insider selling, there are always some conspiracy theories that emerge," says Hugh Shytle, a high-tech analyst at Cowen & Co., an investment house in Boston. "But I'm a little bit skeptical when a guy with a green eyeshade comes along, looks at these numbers, and tries to establish some grand pattern."
With some top managers running for cover, analysts suggest that investors stick to the sector's heavy hitters like Microsoft, Cisco Systems, and America Online. "Always lead with the bigger companies and buy smaller companies in the areas that you know," Johnson says.
For the long haul, high-tech may still mean high profit. "Tech stocks are a good buy long term," Columbus says. "It's just a question whether you would want to be a buyer in the next few quarters."