intc now value- bloomberg
Technology Starts to Look `Cheap,' Investors Say: Taking Stock
New York, Dec. 20 (Bloomberg) -- Technology stocks are on sale.
With the 52 percent plunge in the S&P Technology Index from its March high, more than half of its 81 stocks now sell for a lower price-earnings multiple than the Standard & Poor's 500.
They include the biggest personal-computer makers -- Gateway Inc., at 9.1 times estimated 2001 earnings, Hewlett-Packard Co. and Compaq Computer Corp. at 13 times and Dell Computer Corp. at 16 times. Electronic-component makers also have slumped -- National Semiconductor Corp. trades at 10 times next year's estimated profit and Micron Technology Inc. sells for 9 times.
``Some of these stocks look pretty cheap,'' said Alan Day, who helps oversee $9.3 billion for Stratevest Group in Burlington, Vermont and is considering buying more shares of Intel Corp., Hewlett-Packard, Lucent Technologies Inc. and Compaq.
He and other investors say technology is still the best bet for growth even as the slowing economy has cuts profits and knocked $2.85 trillion in market value off the Nasdaq Composite Index since its March 10 peak.
``There's no question there are more attractive names out there now,'' said George Mairs, who manages the Mairs & Power Growth Fund, up 21 percent this year. ``Motorola, Lucent, Intel -- these are names we'd be looking at adding.''
Intel Corp. trades at 22 times next year's estimated profit and Lucent sells for 20 times. Mairs has about 17 percent of his fund in technology stocks, compared with the S&P 500's 22 percent weighting in the industry.
Investors can buy these stocks now in anticipation of a rally in six months to a year, after the Federal Reserve has cut interest rates and the economy has re-accelerated, said Day. ``The market is telling us to start looking at these tech stocks in anticipation of a higher rate of growth,'' he said.
Yahoo's Slide
At their peaks during the surge in technology stocks late last year, Gateway sold for 45 times expected earnings and Lucent changed hands at 62 times. The stocks are down 80 percent and 77 percent respectively from those peaks.
No. 1 Internet-search engine Yahoo! Inc. has posted the biggest decline in both the S&P Technology Index and the S&P 500 this year. The stock has lost 88 percent of its market value and is at a two-year low. Sales growth slowed because of spending cutbacks by Internet companies that previously bought Web advertising.
Yahoo at the beginning of the year sold for more than 900 times estimated 2001 profit. That figure has since dropped to 46 times.
Still, investors differentiate between the growth prospects for Internet-related stocks like Yahoo and for older, more established technology companies such as Intel.
``Yahoo was one of the companies that took the market to the high side in the first place,'' Day said. Investors ``will go to the more traditional tech companies before the high-flying growth companies.''
The S&P Technology Index has dropped 40 percent year to date, the worst performance of the S&P's 11 economic groups. The index now trades at 31 times recent earnings, down from its peak of 73 on March 27.
Still Lofty
The S&P 500 still has its share of high-flyers.
Palm Inc. is the most expensive technology stock in the index. The No. 1 maker of electronic organizers, which first sold shares to the public in March, trades at 201 times next year's estimated earnings.
Siebel Systems Inc., the No. 1 maker of business software for sales and customer-service operations, sells for 121 times expected 2001 profit. Palm's share price has declined 43 percent, and Siebel's 17 percent, since the March 10 Nasdaq peak.
Just as technology shares performed the best when the economy accelerated in the mid to late 1990s, some investors said, so are they likely to lead the way next year.
Said Day: ``When the economy started growing last time, it came from this technology wave, so maybe now's the time to lay in.''
Dec/20/2000 14:07 ET |
