Technology Stock Advisor Issues Investment Advisory Warning: Tough Global Economic Conditions Taking

PRLog (Press Release) – Jun 30, 2008 – Raleigh, N.C. The Technology Stock Advisor, an online subscription investment newsletter, issued an investment advisory warning today about the declining internal financial conditions of many of the technology companies being tracked by the newsletter.

“Once a technology company enters our universe of companies,” explained Thomas Vass, the investment advisor to the newsletter, “one of the variables that we monitor is their long term debt. In our patented methodology of selecting technology stocks, a company that dramatically increases long term debt loses a degree of sovereignty over decisions related to technological innovation.”

Vass cited the tough global economic conditions, which are causing top line revenues to decrease for most American technology companies. “The companies are taking on increased long term debt at the very moment that their sales are being affected by the global economic slow-down. The restrictive covenants in their debt agreements will tend to lock them into existing declining markets selling their increasingly technologically obsolete products.”

Vass explained that companies that have over 30% long term debt to stockholder’s equity have a difficult time diverting cash flow to the search for either radical innovation, or even the more mundane sustaining innovation. “As a result of being locked into the terms and conditions of the debt, the companies are forced to continue selling products that are on an evolutionary pathway to extinction. Decisions about innovation are more influenced by the outside bankers who demand a stable flow of revenues to repay the debt than by the global market conditions which demand continual innovation investments financed by free cash flow.”

As an example of the newsletter’s technology companies that have dramatically increased long term debt, Vass provided the following table:

Company and Symbol   Previous Long Term Debt   New Long Term Debt (in millions)
3M MMM   2,824   4,140
Nucor NUE   922   2,491
Multi-Color LABL   0   121
PerkinElmer PKI   234   566
Lennox International LII   95   359
PPG Ind. PPG   1,181   3,369
Triumph Group TGI   120   418
Tennant TNC   2.47   89
Joy Global JOYG   396   567
The Technology Stock Advisor

“Some of these companies have been in our active stock lists for many years,” said Vass. “They have been terrific investment candidates in the past, but the tough global markets are causing senior management to adopt financial strategies that are not optimal for the new open, global markets that feature fast innovation life-cycles. Long term debt is cheap today, but succumbing to the lure of cheap debt today will threaten the company’s long term viability to innovate.”

The relationship between technological innovation and long term debt as a criteria for stock selection is explained in one of Vass’ books Predicting Technology: Identifying Future Market Opportunities and Disruptive Technologies, (2007).