Update on Sun

Those of you visiting here often know that I recommended Sun Microsystems last November when it was trading at around $2.50. It has since risen to well over $5, then settled back for a while and is now back over $5 again.

I sold my position at various prices over $5, not because I have lost faith in the stock, but because I think the price has gone up too quickly in this latest rally. I intend to use the profits I locked in to buy an even bigger position in Sun when the stock settles to a lower price in the next down cycle.

I know what you want to know: when will that down cycle begin? Beats me. Some say now. Some say in August. Some say it won’t. All I know is that Sun is too expensive now and that when life gives me a chance to double my money in the short term, I should take it.

I’m betting that I’ll be able to buy in again at or below $4. In sum, I am short-term bearish but long-term bullish on Sun.

BusinessWeek Online published a good article today titled The Tech Rally Is No Freak Performance. It gives an overview of how the prospects for tech are improving and how those improvements will benefit now lean-and-mean tech companies. Overhead in tech land has been slashed to the bone so that any uptick in profits will go straight to the bottom line.

All of that should make tech investing like shooting fish in a barrel again, right? Wrong. That’s where the article shines. When stocks are up some 80% in three months — think Sun — the improvement in tech land would need to be pretty phenomenal to support the price. The improvement is good but it’s not that good. The article specifically mentions Sun as a stock that’s too pricey these days.

I’ll let you know when I buy Sun again, and at what price. If you want to know by email, type your address into the field at the top of this page.

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