Top News
Sun, 27 Dec 1998, 1:53pm EST
Rally in Computer and Internet Shares May Be 'Overdone,' Some Analysts Say
Computer, Internet Rally May Be 'Overdone': U.S. Stocks Outlook
(Repeats story that originally appeared Thursday.)
New York, Dec. 27 (Bloomberg) -- As the best four-year
stretch for the U.S. market draws to a close, investors are
watching computer-related shares soar beyond anyone's
expectations -- and wincing.
The phrase repeated over and over by professional investors
is ''overdone.'' Computer and pure Internet companies may have
the best growth prospects in the years ahead, and investor
infatuation with these shares has grown into a passionate affair,
but does this make sense?
The Nasdaq-100 Index, a capitalization-weighted index of the
largest Nasdaq stocks, is up an astounding 82 percent this year,
its best performance ever, surpassing a 65 percent gain in 1991.
Microsoft Corp. Cisco Systems Inc., MCI WorldCom Inc. Dell
Computer Corp., and Sun Microsystems Inc. have all at least
doubled.
Amazon.com Inc., an Internet bookseller, is up almost 10-
fold this year, and Yahoo! Inc. is up sixfold.
''In January, I expect these to come under selling
pressure,'' said Tim Stevenson, who helps oversee $60 billion as
a money manager with First Capital Group, the institutional money
management arm of First Union Bank.
Stocks often rise in January as investors put new money to
work. Stevenson said money managers are pushing stocks higher in
December in anticipation of that January bounce. The bounce
''feels like it's happening early this year,'' he said.
The Nasdaq Composite Index, up almost 38 percent for the
year, has rallied 10 percent in the past nine sessions.
For the week, the Dow Jones Industrial Average rose
3.5 percent to 9217.99, the Standard & Poor's 500 Index gained
3.2 percent to 1226.27, and the Nasdaq Composite Index rose
3.7 percent to a record 2163.03. The Russell 2000 Index rose
2.1 percent to 405.56.
Standard & Poor's Corp. announced Tuesday that America
Online Inc., the world's No. 1 online service provider, would
join the S&P 500 Index.
Window-Dressing
Computer and Internet companies are gaining as money
managers who are lagging their benchmarks plow into winning
stocks. This ''window-dressing'' aims to fool clients, so when
they look at year-end statements they believe their money manager
or mutual fund manager is in the know.
Optimism that the industry's profits can keep growing even
as the world economy slows is helping the stocks. And no one
knows how big Internet commerce will be. One study, from a
division of Ziff-Davis Inc., said online holiday sales will reach
$3.5 billion this year.
''Investors believe the Internet stocks have what seem to be
unlimited growth potential,'' said Marc Klee, senior vice
president with American Fund Advisors, which oversees $500
million.
Multiples, Incalculables
Now, soaring Internet shares are changing the way some
investors value companies. Amazon.com shares rise by the day even
as business losses widen. In contrast, Microsoft trades at 63
times the past year's earnings -- a lofty multiple by most
analysts' standards, but a multiple nonetheless.
''Microsoft has a solid product and they have real
earnings,'' said Dan Eagan, a money manager at BlackRock, which
oversees $115 billion. ''At that price, they're very cheap,
versus a multiple you can't calculate.''
Many professionals, particularly lagging managers, are
reluctant to sell their winners before the year's out. That way
they can delay hefty capital gains taxes until 1999.
Then, Eagan is hopeful investors' attention will shift to
now out-of-favor commodity companies. He said shares such as
International Paper Co. and Reynolds Metals Co. will prosper as
long so the U.S. economy surprises the naysayers and continues
growing.
|
