Washington area technology stocks were big losers yesterday as profit-taking investors cashed in on the highflying sector's gains at the end of 1999.
Biotechnology stocks were hit hardest, as MedImmune Inc. dropped $21.12 1/2, to $134.37 1/2, Human Genome Sciences Inc. fell $19.68 3/4, to $138.25, and Celera Genomics Group declined $9.43 3/4, to $177.06 1/4.
Two other signature tech firms in the region also were knocked down. America Online Inc. dipped $6, to $77, and business software developer MicroStrategy Inc. fell $12.50, to $196, on the day it announced a 2-for-1 stock split.
"The markets have had a tremendous rise. Investors stayed with that until there was a clear sign the momentum was broken," said Richard Cripps, chief equity strategist at Legg Mason Wood Walker in Baltimore. The opportunity to take profits at the onset of the year, and the expectation of interest-rate increases, have tipped momentum the other way, he said, at least for the present.
The Washington Post-Bloomberg index of 205 Washington area stocks fell nearly 3 percent yesterday, with 124 stocks closing down and 60 finishing up for the day. The rest were unchanged.
In some cases, investors concluded that prices were simply too high based on companies' anticipated results this year, analysts said. The falloff of MedImmune shares followed the downgrading of the stock by Salomon Smith Barney Inc. analyst Meirav Chovav, after the Gaithersburg company's stock exceeded her price target of $150. MedImmune, whose products treat infectious diseases, had climbed above $170 a share last Thursday.
"The company is definitely sound. The only reason [for the price drop] is valuation," said Sergio Traversa of Mehta Partners in New York.
Investors also were weighing the impact of higher interest rates on companies and stock prices, said Bill Whyman, an analyst with Legg Mason Precursor Group. Internet companies that don't have positive cash flow and telecommunications firms building costly networks would be most affected by higher rates, he said. Among area stocks that fell yesterday were several in those categories, including PSINet Inc., Omnipoint Corp. and Nextel Communications Inc.
A few stocks shrugged off the downward trend.
Network Solutions Inc. rose $8 to $225.12 1/2, offsetting some of a week-long sell-off. Ulric Weil, an analyst with Friedman, Billings, Ramsey Group Inc., said the rebound simply made up for the large decline since a competitor in the Internet domain names registry field--Register.com Inc.--announced Dec. 23 that it would be going public. While Network Solutions handles more than 6 million registered domain names, Register.com has more than 1 million. "That's like an ant attacking an elephant," Weil said.
Digene Corp. jumped $2.12 1/4, to $19.50, as a result of the publication of a favorable study of its cancer diagnostic product in the Journal of the American Medical Association.
Defense companies General Dynamics Corp. and Lockheed Martin Co. also gained ground yesterday, after being hurt by tax-motivated selling at the end of 1999.
At Legg Mason, trading desks were "active but calm," Cripps said.
"Where individual investors had 1,000 shares," he said, "they were selling 200 to 300. They were not liquidating positions."
Weill said the selling soon will attract bargain hunters. "In a matter of two or three days those will be buying opportunities," he said. "Investors who have stood on the sidelines have another entry point here where they can get in."
Carolyn Pratt of Needham & Co. said that although yesterday was tough for biotech stocks, she doesn't believe investors' confidence in these companies has changed. "In my opinion, these companies have great potential to help a lot of people with new drugs and people still recognize this," she said. "It's just a function of how quickly they have gone up over the last few weeks."
Cripps said he too expects investors to return to the market, but at this point, it's impossible to tell when. "There was not a lot of angst" yesterday, he said, but there may be today as more investors digest yesterday's losses.
"We're going to have some corrections in stock prices," Cripps said. "That always makes people anxious."
But when the fundamental position of a technology firm turns positive, investors will react, Cripps said, citing the sudden demand for shares of AppNet Inc. yesterday.
The Bethesda Internet consulting company's shares shot up 15 percent yesterday to $52.25 following an announcement that it would team up with telecommunications giant MCI WorldCom Inc. to offer a one-stop source of e-commerce solutions delivered by high-speed "broadband" data lines.
Analysts called it the first major indicator that the hottest ventures in 2000 may not be the sexy consumer "dot-coms" of 1999 but rather the duller business-to-business Internet companies.
Under the multi-year agreement, AppNet strategists and programmers would customize Web applications for clients to be carried over MCI's global network.
AppNet said it expects the partnership to bring in $30 million over the next 18 months, representing about a third of its business.
As concerns over the Y2K computer bug evaporate, analysts expect companies to redirect their information technology spending to Web projects. Forrester Research Inc. estimates that the business-to-business e-commerce market will grow from $131 billion last year to $1.52 trillion in 2003.
Ron McMurtrie, a vice president at MCI WorldCom, said AppNet is the first of about two dozen partners the company hopes to add in the next four months to leverage its e-business efforts. "We're not going to lead with pipes and throw in some value-added," he said. "We'll actually sell the complete solution as part-and-parcel to the way we sell our data lines."
Taking a Tumble
Here are stocks from the Bloomberg D.C. area index that had the biggest percentage drops yesterday:
Percent change, Jan. 3-Jan. 4
Sonex Research -23.1%
Optical Cable -12.7%
Human Genome Sciences -12.5%
ITC Learning -11.6%
Cadmus Communications -9.7%
Riggs National -8.8%
Smithfield Foods -8.7%
SOURCE: Bloomberg News