Zero Visibility

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Lou Gerstner disavowed the importance of vision eight years ago, when he became CEO of then beleaguered IBM. "The last thing IBM needs is a vision," he said, playing up the company's immediate ills. President Bush--the first one--famously lamented voters' focus on "the vision thing." Bill Gates once said that "being a visionary is trivial." Ahem. Wall Street begs to differ. In the post-bubble slowdown, investors can't get enough vision from decision makers. In fact, in many cases they can't get any. And that's the problem.

Investing's latest buzzword is "visibility." "Are you tired of the word?" Merrill Lynch recently asked in the title of a research report. It's heard so often in brokerages that you could mistake a trading room for a training room at the National Weather Service. Visibility near zero, say meteorologists, er, analysts. Their fogged-over lenses are why stocks are in the dumps.

So the questions of the day are: What is visibility? How did we lose it? And where can we get some more?

In a Wall Street context, visibility is simply what we know (or don't know) about future business activity. When times are good, companies book orders at a fairly predictable rate and can easily project sales and earnings for the next few quarters. That's visibility. When times are tough, companies may still book orders at a predictable, albeit slower, pace. They still have visibility; it's just not a pretty picture. Either way, execs relay what they see to investors, creating a comfort zone that keeps the stock from gyrating--even when it falls.

Un-visibility is an odd duck. It means that business has slowed to unexplainable levels. Executives have no confidence in whether the pace of new orders will slow further, stabilize, or pick up dramatically. That's typically when a company clams up--then it's "so long, comfort zone," and the stock jumps around. Last week web-design firm Macromedia forecast low visibility through the quarter, and its stock fell 22%. Others with vision problems include Ericsson, Nortel and Corning. Outside of telecom, Heidrick & Struggles, Kodak and Aetna need a stockthomologist.

These companies were blinded by the dust of an economy skidding to a halt. Corporate profits dropped 8% in the first quarter, a stunning reversal from the double-digit growth forecast last year. Not wanting to get it wrong again, a lot of CEOs are simply saying they'll have to wait and see. Worsening the vision void, new regulations require that companies say nothing unless they say it in a venue for all to hear. Regulation FD (fair disclosure) has curtailed guidance on earnings.

When will the skies clear? Tom Galvin, market strategist at CS First Boston, notes that the National Association of Purchasing Management's New Order Index has risen three months in a row. He expects mum companies to gain enough confidence to start offering guidance when they report second-quarter results in July. I'm all for making a sensible bet on beaten-up outfits that stand to regain their sight in a few months. If what they see is the start of a recovery, the stocks will do well. Meanwhile, visibility hasn't been an issue for many recession-resistant companies in health care, drugs, food, beverages and utilities. And it's hard to lose money if you invest only as far as you can see.