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Investors Tossing Baby With Bathwater

Oracle Inc. is having trouble selling software in Asia; sell Computer Associates International Inc. shares.

Western Digital Corp. is cutting its disk drive prices to the bone; sell EMC Corp. stock.

J.P. Morgan & Co. profit was hurt by violent financial markets; sell Citicorp.

Some U.S. investors are, if you’ll pardon the clich, throwing the baby out with the bath water.

Shares of many U.S. companies have fallen recently after competitors warned that business would fall short of expectations. A closer look shows that in some cases, this made little sense.

Take software maker Computer Associates, whose shares have fallen 10 percent since Dec. 8. On Dec. 9, computer database company Oracle posted a disappointing quarterly profit and its stock suffered a one-day, 29-percent drop. Oracle cited Asia’s financial crisis and slowing sales of the database programs that help manage big libraries of computerized information for its shortfall.

Computer Associates shareholders said Oracle’s woes shouldn’t take such a toll on Computer Associates, which gets 10 percent of its sales from Asia, compared with Oracle’s 15 percent. Charles Wang, chairman of Computer Associates, said he doesn’t expect a slowdown in Asia to have a material effect on its business.

Mark Stoeckle, manager of the $650 million Colonial U.S. Stock Fund, said EMC has been unjustly punished. Shares of the company are down about 15 percent since Dec. 2, when Western Digital warned investors that it would break even in the fiscal second quarter because of price cuts on disk drives used in personal computers.

Stoeckle said the stock’s decline is unjustified because the companies operate in different sectors of the computer businesses.

While EMC uses disk drives to make its computer storage systems, its earnings prospects aren’t dependent on demand for disk drives themselves.

“There’s a misunderstanding among investors about the components EMC uses and the subsystems it makes,” said Stoeckle. “What we’re seeing is a knee-jerk reaction.

“The good part is that if you know your company, you can take advantage of it. EMC, at its current price, is a great buy.”

Citicorp, the second-largest U.S. bank behind Chase Manhattan Corp., fell 8 percent in three days after J.P. Morgan, the fourth-largest U.S. bank, said Dec. 10 its fourth-quarter earnings were being hurt by the turmoil in global financial markets. New York-based Citicorp hasn’t indicated to investors any change in its earnings forecast.

This week, the bank beefed up its already giant credit card business by agreeing to buy AT&T;’s Universal Card business.

Some analysts said the “sell first, ask questions later” mentality is compounded by the time of the year in which Asia’s woes have mounted and by the sizable gains that investors have racked up so far in 1997. Because portfolio managers report annual results to their mutual fund investors at year’s end, they are quick to sell any stock that could dent their overall performance.

“Money managers don’t want to tarnish their returns, and they also are concerned about the appearance of the statements shipped out to investors,” said Don Hays, chief investment strategist at Wheat First Butcher Singer in Richmond, Va. “It’s what they call window dressing.”

Computer-related shares have been among the worst-performing stocks in the U.S. during the last month as concern has mounted that sales to one of the fastest-growing areas of the globe have slowed.

“Investors’ attention spans are so short,” said Annette Geddes, a money manager at Spears, Benzak, Salomon & Farrell in New York, a firm that oversees about $5 billion in assets. “No one’s investing for next year.”