Amid Conflicting Advice, Investors Are Asking: Have Tech Stocks Bottomed Out?
Technology stocks, which helped dig the market into its recent hole, may be leading the way back out.
Microsoft Corp., Intel Corp., Sun Microsystems Inc. and other tech issues surged Thursday, and the technology-dominated Nasdaq composite index jumped 41.31 points, or 2.3%, to 1,829.51.
Investors seemed to decide that the tech sector had taken a worse beating than it deserved over skidding sales to Asia and a possibly slowing U.S. economy.
The question is how long that conviction will hold.
“We certainly think a bottom has been made” in tech shares, said Ronald J. Hill, investment strategist at Brown Bros. Harriman & Co. “There’s some belief now that Asia has been properly priced in--or too much priced in.”
Even semiconductors--the tech sector hardest hit by the Asia financial crisis that surfaced last fall--have shown signs of reviving in recent days.
The 16-company Philadelphia semiconductor index hit nearly a two-year low in early June but has held up better than other technology gauges during the last two weeks of market turbulence.
From an investor-psychology standpoint, semiconductors may be well poised for a rebound because their year-to-year earnings comparisons will improve later this year, said Mary Farrell, investment strategist at PaineWebber.
Profits took a hit in the last quarter of 1997, so this year’s fourth quarter may look robust.
In another positive development for the tech group, Goldman Sachs & Co. on Thursday added Compaq Computer Corp. to its “priority” list of stocks. Compaq leaped $3.19 to $35.13 on the Big Board.
When Abby Joseph Cohen, Goldman’s chief strategist, helped soothe the markets Wednesday after Tuesday’s 299-point drop in the Dow Jones industrial average, technology was a big part of her bounce-back scenario.
She said: “We believe that the inventory correction is now largely complete, especially among hardware manufacturers such as PC companies. Technology remains an area of favorable secular growth.”
One technology expert who is leery of the snap-back in tech shares is Bruce Lupatkin, director of research for Hambrecht & Quist.
Thursday’s surge was “more of a sucker rally than anything else,” he said, adding that he suspected some large investors were using the opportunity to sell shares and sit on the sidelines for a while.
“The number of companies whose business is accelerating is shrinking, not growing,” he said.
When the turnaround comes, Lupatkin suspects it will be led by semiconductor capital-equipment makers such as Applied Materials Inc. because they will supply the tools that chip makers need to gear up for the next product cycle.
John Lynch, director of investment strategy at Interstate/Johnson Lane Corp. in Charlotte, N.C., also endorsed Applied Materials as “the only capital-equipment manufacturer that has been skillful at getting stuff off its shelves and not getting hit too hard with inventory problems.”
“The near-term earnings outlook for technology companies remains uncertain, but the average stock has probably already corrected 25%, which takes a lot of risk out of the picture,” said Roger McNamee, general partner at Integral Capital Partners, a technology investment firm in Menlo Park.
“If you liked these stocks a month ago, you’ve got to love them now.”
McNamee cautioned that investors hunting for bargains might think twice about picking the stocks that have been beaten down the most. “The things that correct least are the ones that work best on the way out,” he said.
At the moment, those sectors would include “first-tier Internet companies” and vendors of software applications for Windows NT, including the obvious one--Microsoft--and such smaller firms as Platinum Software Corp. and Citrix Systems Inc.
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Tech Winners
Some big gainers Thursday among tech stocks:
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Stock Thurs. close and change Cisco Systems $99.38, +$2.63 Compaq 35.13, +3.19 Computer Assoc. 38.69, +5.06 Earthlink Net. 35.88, +2.63 IBM 129.75, +1.25 Intel 87.00, +2.88 Lycos 57.88, +4.50 Microsoft 106.88, +2.56 National Semi. 13.88, +2.00 Parametric Tech. 14.25, +2.44 Sun Microsystems 48.88, +1.06 Yahoo 87.88, +3.50
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Source: Reuters
