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Warning: Sell These Tech Stocks

Written by Brian Hicks
Posted October 24, 2006

Dear Reader,

“Hey wait a minute guy” the voice on the other end of the phone barked. “I thought you said the next Youtube blockbuster was going to start trading yesterday!?!”

Judging by the scores of emails I received, this question is on just about everyone’s mind.

As it should be.

Yes, our blockbuster tech stock, which I expect will be like crack to the hipsters on Wall Street, was supposed to start trading yesterday.

It didn’t. It’s been delayed.

But it’s not reason to panic. I was reluctant to put an exact date on the opener for this thing for just this reason. You see, when you’re floating a public offering like this, the paperwork and red tape involved is mind boggling.

So the bottom line is, we’re delayed by a week, I’m told. That could mean two weeks, although I doubt it. Suffice it to say that we’re delayed just a bit.

Just keep an eye on your email, because as soon as I get the word, you’ll get the green light.

Remember, this puppy has already caused a serious stir on “the inside.”

What I mean is, when they raised seed capital, they were looking for something around $20 million. They got commitments for something like $200 million, or ten times more than they were asking.

So that’s why I’m confident this thing will be red-hot. That, and the fact that Google just gobbled up Youtube for over a billion bucks.

So hang tight, and watch for an urgent report from me in the coming days.

On another note, today I'd like to bring you the fourth in our ongoing series of reports from Wayne Mulligan, editor of Tech Stock Investor.

In this issue, Wayne warns you of some of the potential risks in this sector . . . and he identifies two tech stocks you should avoid at all costs.

Enjoy . . .

Brian Hicks,

Publisher, Quantum Investor

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WARNING: SELL THESE TECH STOCKS

Now I know I've gone on and on in my previous emails about how great the technology sector is, and about how much money we stand to make by investing in it.

But I wouldn't be doing my job if I didn't talk to you about the risks of investing in this sector as well. I'd be an irresponsible and reckless individual if I didn't talk about the potential downside here.

And believe me when I say that there's plenty!

There are a number of tech stocks that have gotten killed recently, and many more that I think have the potential to really hurt you going forward if you have any of them lurking in your portfolio.

If there's one thing that I want you to take away from my writing, it's this:

Almost as much as trying to direct to toward money, my goal is to make sure you don't lose your money!

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CASE IN POINT: SALESFORCE.COM (NASDAQ: CRM)

SalesForce.com is a producer of web-based Customer Relationship Management software. Now here was a stock that had performed incredibly well for early investors-up more than 100% in about two years, as a matter of fact.

But no matter how great past returns may have been, they are just that: "past returns." And as everybody should know, past returns are never a guarantee of future performance!

And with a P/E of roughly 200, SalesForce.com was an expensive stock. But beyond just being expensive, its underlying business was languishing. I first wrote about this company in The Tycoon Report on March 14:

http://www.fallenangelstocks.com/view_articles.asp?nDataType=3&id=181

The bottom line was this company had a business whose technology was easy to duplicate-so easy, in fact, that a new company was offering an almost identical product for roughly half the cost!

This was a stock that was widely held and considered to be a great company-but only by those who didn't understand the technology behind what they did.

If you had followed my advice (assuming the stock was in your portfolio) and sold CRM, you would've saved yourself a 50% loss in about two months. On the flipside, if you had shorted the stock you could've profited 50% in that same two-month period.

Now, there's one more tech outfit that I think could be putting your portfolio at major risk right now:

TECH DOG # 2: ACTIVISION (NASDAQ: ATVI)

Activision is a video game software producer. There a number of things wrong with this company, and I discussed them a bit in a Tycoon Report article I wrote on June 21. Take a moment to review it:

http://www.thetycoonreport.com/tycoon_report/20060621.html#wayne

Here's the situation in a nutshell:

1. Activision is a weak business. Most software makers have double-digit margins; Activision's are under 5%.

2. The company has shown losses in three of the last four quarters.

3. Questionable accounting issues could keep a black cloud over this stock for quite some time, regardless of how the business performs.

So, at a P/E of 80, I think this stock could fall a lot over the short term-especially if we see it break support at $10 per share.

If this were in my portfolio, I'd think twice about hanging on to it.

Investing in technology is a tough business if you're not sure what to look out for. There are plenty of pitfalls and traps, and you have to have your wits about you or you could get burned. The most important thing is to have a clear understanding of the underlying technologies and business models. You can't look at the stock prices alone.

So if one of these stocks is in your portfolio, don't let your hard-earned profits get flushed down the toilet. Save yourself some heartache and consider getting out now.

As I said before, what sets me and Tech Stock Insider apart from other services is that I'm not just in the business of talking about the upside potential in our investments. I openly discuss the risks and do my best to warn you about them beforehand.

We have to make sure we protect our money before we can make more.

Regards,

Wayne Mulligan

Chief Investment Officer

Tech Stock Insider

P.S. We're in the home stretch of our little series here, and I've saved the best for last. In a few days I'll share with you some wisdom that I received from Bill Gates (yes, that Bill Gates) that's helped me do as well as I have in technology investments. Also: A little more info about my Tech Stock Insider service. So stay tuned!

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