From Barron's this week:
Technology stocks, on the other hand, have fallen off their pedestal, and many smaller issues are irretrievably broken. The Big Money managers, who loved them on the way up, now are cruelly unforgiving. They've demoted the sector to last place from first in their heirarchy of future market leaders; 66% of respondents believe tech will be the weakest performer in the next six to 12 months.
In response to a separate question, 64% of the managers said tech shares had not yet hit bottom, but in their follow-up comments most thought a trading trough was near. Thus, it should come as little surprise that only 32% of the managers expect growth investing to trump value investing in the coming year. A mere 23% expect the market for initial public offerings to revive later this year. Both growth-stock investing and the IPO market of the late 1990s drew their Herculean success from the erstwhile bull market in tech.
Why so glum now about this once-beloved sector? "There is huge over-capacity in all areas of technology and it's going to take a couple of years to work through," says Alan Snyder, president of Snyder Capital Management in San Francisco, which oversees $2 billion. The build-up in inventories of many technology equipment manufacturers has been exacerbated by the meltdown in dot.com companies, whose brand-new equipment is now being resold by liquidators at bargain-basement prices. In addition, most businesses undertook a technology buying binge in the months preceding Y2K, or the Year 2000, to prepare for the possibility of a global, calendar-related computer failure. Until customers open their wallets again, tech equipment suppliers are likely to remain under pressure.
Snyder believes tech stocks will follow the same forlorn path trod by energy shares in the 1980s. Both groups were hugely popular with investors, and comprised about 30% of the S&P 500 at their respective peaks. "It took more than 10 years for energy stocks to find their final bottom," he recalls.
Too, the techs are down, but their lofty valuations haven't been washed out entirely. Even at 19 a share, Cisco still trades at 51 times calendar 2002 estimated earnings, while Intel, at 30, sports a P/E of 37. Consequently, many investors believe it will take several years until the sector's earnings catch up with its diminished, but still rich stock prices. |
