buy it while it's unfashionable

(The West Australian, pp33-4, 11 March, 2005)


TECH STOCK LOATHING GIVES WAY TO HO-HUM

Tom Petruno
New York


Five years after the Nasdaq stockmarket peaked, technology sector loathing is no longer in fashion on Wall Street.

It has been replaced by what some tech fund managers say is even unkinder treatment: simple disregard by many investors.

Technology holds little cachet in a stockmarket where oil, real estate, copper and other hard assets have become the new darlings, said Doug Foreman, a managing director and tech stock specialist at TCW Asset Management in Los Angeles.

But investors who can afford to look ahead two to three years instead of kicking themselves over how much they lost in the tech crash - will find no shortage of exciting companies in telecommunications, electronic gaming and internet commerce, to name a few niches.

David Ellison, a money manager at Friedman Billings Ramsey & Co in Boston, says this is a great time to be investing in solid tech companies that the market is ignoring.

It's a better time to be investing in tech names than in residential real estate and other hard assets, he says. Three to four years ago was the time to be investing in oil.

Yet Mr Foreman describes many big clients' attitude toward his tech investment ideas over the last year as one of "benign indifference".

That shows in the recent performance of the Nasdaq composite index, which is dominated by the
tech giants that call Nasdaq home: it has fallen 5.3 per cent since December 31 to 2061.29, amid a broad market slump.

Despite more signs that the global economy is revving up, good news for the tech industry's sales and earnings outlook, the Nasdaq index is sharply lagging behind other major stock gauges. The Dow Jones industrial average is up 0.2 per cent this year.

Five years ago, it was the Dow that was a relative wallflower, as the craze for dotcom stocks sucked in millions of investors.

It was on March 10, 2000, that the Nasdaq index zoomed to its all-time high of 5048.62, in the last gasp of the tech stock mania that built up slowly in the late 1990s before mushrooming in 1999, when the Nasdaq index rocketed 86 per cent.

The internet was changing everything - including, it seemed, how high stocks could go before they became absurdly overvalued.

But 5000 on the Nasdaq index was indeed an absurd level. As interest rates rose in 2000 and the global economy slowed, investors began to realise how little in real sales and earnings backed up many tech companies' inflated share prices.

The buying panic of late 1999 and early 2000 became a selling panic. By the end of 2000 the Nasdaq index had been cut in half from its March peak. It would continue dropping in 2001 and 2002, reaching its bear-market low on October 9, 2002, at 1114.11 – down 78 per cent from its peak.

With the broad market's rebound in 2003 and 2004, many tech stocks revived as well. But most remain far off their highs. At Wednesday's closing level, the Nasdaq index was down 59 per cent from its zenith.

To be sure, star stocks have emerged from the tech wreck even as many devastated investors have turned away from the sector.

Internet search engine Google became wildly popular at its Wall Street debut last year, with investors bidding it up from the offering price of $US85 in August to a peak of $US210 early last month.

And Apple Computer also roared amid the success of the Ipod music player. Apple stock zoomed 201 per cent in 2004 and is up 22 per cent this year.

But since 2000, the tech story has been more the small and mid-caps than the big companies.

Indeed, some tech stock fans say a major challenge in getting investors interested in the industry again is that the most visible and best-known companies - for example, Cisco Systems and Intel - are among the biggest laggards in the market.

Shares in Cisco, the dominant maker of computer networking equipment, slumped 20 per cent last year, even as the broader market rallied. So far this year Cisco is down 4 per cent. Intel is up 6 per cent, after a 27 per cent plunge last year, when it was the second-worst performer in the Dow Jones industrial average.

The fact that many investors are ignoring tech stocks actually gives comfort to Walter Price, manager of the Pimco RCM Global Tech fund in San Francisco.

"When it's time to be interested in tech," he said, "no one is.”