Market Meltdown

Some individual investors and mutual fund managers alike were thinking “buying opportunity” Friday as stock prices plunged.

While a few Internet funds reported slight outflows of cash this week, other tech funds enjoyed a steady flow of money coming in to take advantage of the lower prices.

“We have had net inflows into our Science and Technology fund of over $150 million over the past two weeks,” Steven Norwitz, spokesman for Baltimore-based T. Rowe Price Associates, said Friday. “There is no panic here--other than a panic to take advantage of the lower prices.”

Many fund companies reported heavy call volume from customers--but not from Friday’s market crash; they said most of the inquiries were last-minute IRA and tax questions from people trying to file their returns before the Monday deadline.

The handful of investors calling about market concerns were nearly evenly split between those worried about things getting worse and those wondering whether it was time to get in or buy more, fund companies said.

Meanwhile, some managers who have been sitting on cash said they might put it to work soon, perhaps Monday, because they believe the market may be close to hitting bottom.

“I am hoping to use the cash that I have on hand to be buying before too long,” said J. Michael Gallipo, portfolio manager of the Monument Telecommunications fund. “I think we have taken a lot of the excesses out of the market and you are beginning to see some signs pointing to the fact that we are nearing a bottom.”

Fund managers noted that many big-name stocks took it on the chin Thursday and Friday, and that the downturn that began with tech stocks had broadened to nearly all industry groups. Typically, the leading companies get hit last during a slump and are the first to rebound, as a bear market is not a true bear market until everybody feels the pain.

Of course, there were some signs of alarm among individuals.

“I was taking investor questions over the Internet yesterday and I got a guy asking, ‘Will the Nasdaq ever, ever hit 3,900 again?’ ” Gallipo said with a laugh. “I don’t know if we’ve hit bottom, but I do know this: Stocks go up and stocks go down. The fundamentals underlying these stocks haven’t changed.”

Indeed, several fund managers said they considered the past week of bloodletting a “value correction” that was overdue and largely healthy.

“This may help take care of some of the concerns that the Fed has had about the market getting overheated,” said David Brady, portfolio manager of the Stein Roe Young Investors fund. “I would be a selective buyer at this point.”

Investec Guinness Flight, a Pasadena-based fund company, also expects to be buying next week. The company’s technology funds have been getting strong inflows of cash in recent weeks, but managers were reluctant to invest the money when valuations were steeper, said managing director Jim Atkinson. Roughly 25% of the fund’s assets are in cash.

“They are going to put that money to work on Monday,” Atkinson predicted.

T. Rowe’s Norwitz predicted much the same for the company’s Science and Technology fund, where manager Chip Morris was sitting on cash because valuations had gotten out of hand.

“This sector had gotten so extended that even though the fundamentals were good, the valuations were extreme,” Norwitz said. “Chip says he’s glad to be able to invest again knowing that there is a fundamental reason why these stocks ought to rise. Even though we’re suffering through a bit of a hangover, the party will continue.”

Steve Hayward, portfolio manager of Stein Roe’s Midcap Growth and Capital Opportunities funds, was a touch less sanguine.

“If you hear my voice trailing off, don’t worry. I’m just jumping out the window,” he quipped. “In all seriousness, I guess what I’m doing is weeding the garden. I’m selling some things that might have been a little more questionable and consolidating assets into companies that I think have superb prospects over the next two years.”

Fritz Meyer, manager of Invesco Growth & Income, also did some portfolio tweaking Friday, “buying a little more” of his favorite blue-chip and tech names such as General Electric Co. (ticker symbol: GE) Oracle (ORCL), EMC Corp. (EMC), Nextel Communications Inc. (NXTL) and Warner-Lambert Co. (WLA), while trimming other stocks he likes a tad less. He joked that “on days like this, you’re kicking yourself a little bit for being fully invested all the time.”

“You’ve got to believe the bottom could be near,” Meyer said, pointing to technical indicators such as a key market volatility index, which spiked higher Friday, and the put-call ratio of options, which spiked the previous day. Both often jump as sell-offs are climaxing.

Meyer said he might look to add to his positions in leading tech stocks that are “back in reasonable valuation range,” particularly those that fit into “the Internet and wireless build-out theme.”

Stocks he likes include “the Four Horsemen” of the Net build-out--Cisco Systems Inc. (CSCO), Sun Microsystems Inc. (SUNW), EMC and Oracle--plus wireless leader Nokia Corp. (NOK), and Dell Computer Corp. (DELL). Said Meyer: “The PC business is going to remain robust--I don’t care what anyone says.”

Ron Muhlenkamp, manager of the $176-million Muhlenkamp Fund, is also looking to buy, but he spent the day on the sidelines.

“Days like today, we just sit back and let the knives fall,” he said. His value-oriented fund is up 2.2% this year, according to Bloomberg News, holding up better than 76% of the mutual fund universe.

Though several of the stocks he likes have dropped through his price targets, he said he will wait for clearer signs of a market bottom before putting cash to work.

“We’re in Filene’s Basement--the theory, not the store,” Muhlenkamp said, referring to the clothing retailer whose bargains were marked down 10% the first week, 20% the next week, and so on. “We’re waiting for bigger bargains.”

Muhlenkamp, who said he spent Friday honing his stock-watch list and “playing some solitaire,” said he might consider bargain hunting among mid-size financial stocks such as Countrywide Credit Industries Inc. (CCR), consumer durables like Ford Motor Co. (F) and home builders such as Centex Corp. (CTX). He said he might also consider major financials such as Merrill Lynch (MER), which were “beginning to look more reasonably priced” with Friday’s slide.

Michael Cohen, whose new Alpha Analytics Digital Future Fund has ridden the roller coaster in its debut year, expects this week’s sell-off to “end up looking like a good buying opportunity for investors whose horizons can be measured in years.”

The $2-million, Los Angeles-based fund, which was launched Dec. 22, rocketed 48% in the first quarter, ranking first on Morningstar Inc.’s tech-fund list, but dipped into red year-to-date Friday for the first time.

Cohen said he likes discounted tech stars such as CMGI Inc. (CMGI), JDS Uniphase Inc. (JDSU) and Rambus Inc. (RMBS).

Internet incubator CMGI could get a cash windfall from its pending initial public offering of Net portal Alta Vista (postponed, for now), “fueling other entrepreneurial opportunities going forward.” Cohen also admires the network of young companies CMGI is developing.

JDS Uniphase’s growth prospects justify its still-lofty valuation, he said, noting the stiff barriers to entry in the fiber-optic components field. “I’m not sure if anyone can create products with the complexity that they do,” Cohen said, noting its contracts with several telecom companies. “Imagine a laser, the size of a grain of salt, which can modulate at a billion times per second and operate 10,000 feet underwater.”

Rambus, whose stock has fallen by two-thirds since mid-March, has been “victimized by politics in the memory business between Intel and AMD,” Cohen said.

Cheaper, rival chip-to-chip interface technology has drawn a lot of support lately, but Cohen thinks Rambus, with its close ties to leading semiconductor maker Intel, will “win out in the long run. Rambus has more efficient technology, and its cost will come down.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

The Market Crash in Perspective

Though Friday’s market plunge saw the Nasdaq composite lose 9.7% and the Dow fall 5.7%, the losses so far have pulled Nasdaq only back to its levels of late-November. The Dow, meanwhile, still is above its lows reached in early March. Weekly closes for the indexes:

Dow Industrials

Friday: 10,305.77

down 617.78 points

Nasdaq Composite

Friday: 3,321.29

down 355.49 points

Tech Leaders: Still Far Above Their Lows

Technology stocks have crumbled from their peak prices. Yet many remain well above their lows of 1999. The risk now: More investors with paper profits may decide to take them, before they vanish. A sampling of tech shares:

*--*

52-week 52-week Friday Friday Stock low high close change Apple Computer $33.50 $150.38 $111.88 -$1.94 Cisco Systems 24.81 82.00 57.00 -4.13 Inktomi 42.00 241.50 100.81 -9.75 Intel 50.13 145.38 110.50 -10.63 Motorola 73.75 184.63 109.00 -8.00 Network Solutions 24.50 255.63 105.94 -19.20 Qualcomm 15.38 200.00 105.19 -21.31 Redback Networks 16.25 198.50 56.19 -25.94 Tibco Software 6.56 147.00 48.31 -7.38 Vitesse Semi. 20.38 115.69 54.69 -12.19

*--*

Stocks For Bargain Hunters?

Some mutual fund managers say they are buying, or eyeing, both technology and so-called value stocks as the market declines. Among the stocks on some managers’ lists:

*--*

Estimated 52-wk. Friday Friday 2000 Company high close change P/E* Countrywide Credit $48.00 $28.13 -$1.38 9 CMGI 163.50 52.06 -14.19 NA EMC 145.44 110.00 -10.00 76 Ford 67.88 52.25 -2.19 9 General Electric 164.88 145.75 -4.75 39 Nextel Comm. 165.88 104.88 -8.69 NA Rambus 471.00 156.25 -46.38 255 Warner-Lambert 109.88 101.50 -5.50 41 S&P; 500 index 1,552.87 1,356.56 -83.95 27

*--*

*

Note: Estimated price-to-earnings ratio based on analysts’ consensus estimate of company’s earnings per share in current fiscal year

NA: not applicable (loss expected)

Source: Bloomberg News