Nasdaq May Top 5000 on Demand for Computer and Telecommunications Shares
By Nick Olivari
Investors See Nasdaq Index Topping 5000: U.S. Stocks Outlook
New York, Feb. 27 (Bloomberg) -- Nasdaq 5000? Some money
managers say the Nasdaq Composite Index is headed toward another
milestone, driven by demand for shares of computer and
telecommunications companies.
``We don't see any major glitches in the tech story,' said
Dan Cook, a money manager with StoneRidge Investment Partners LLC
in Malvern, Pennsylvania, who manages $880 million. ``Business
looks good and the money is flowing' to Nasdaq listed stocks.
The Nasdaq gained 4 percent last week, about half of the
amount it would take to reach 5000. The index finished the week at
4590.50, falling 27.15 points on Friday. The index closed at a
record on Thursday.
One reason managers such as Cook are optimistic that the
Nasdaq index is headed higher is that as the index has been
outperforming the Dow Jones Industrial Average, they expect more
money to flow out of companies such as International Paper Co. and
American Express Co., and into stocks like Cisco Systems Inc.
The Nasdaq is up 12.8 percent so far this year, compared with
a decline of 14.22 percent for the Dow average and a drop of 9.25
percent for the Standard & Poor's 500.
Edmund Cowart, a fund manager at Eagle Asset Management Inc.
which oversees $7 billion in St. Petersburg, Florida, said it's
significant that the indexes have gone in different directions on
a large number of days this year.
The Nasdaq has gained on 12 days this year when the Dow fell.
According to MarketHistory.com, the last time the performance of
the indices has diverged over a similar period of seven weeks was
in February 1999 and before that in March 1998.
Cowart said that tells him money is flowing out of industrial
companies and into the telecommunications, computer and
biotechnology industries that account for about four fifths of the
companies in the Nasdaq index.
``Money is moving from value to growth,' said Cowart. ``It's
rotation into the things that have been working like Cisco Systems
and out of the things that are down and out.'
Indices Diverge
Cisco Systems closed the week at 132 3/4, a gain of 5.5
percent. With a market value of $454 billion, it recently overtook
General Electric Co. as the world's second-largest company and is
now closing in on Microsoft Corp., which has a market
capitalization of $475 billion.
For the week, the S&P 500 index declined 0.95 percent, led by
Fluor Corp. and Novell Inc., each of which dropped more than 25
percent. The big gainers in the S&P for the week included Mirage
Resorts Inc., up 29 percent, after MGM Grand Inc. offered the
acquire the company for $5.5 billion.
Gateway jumped 24 percent after the company unveiled
alliances with Sun Microsystems Inc. and OfficeMax Inc. aimed at
boosting sales of the personal computers it makes.
The Dow Jones Industrial Average fell 3.4 percent last week,
closing below 10,000 for the first time since April. 6. The
decline contributed to reduce the price-to-earnings ratio for the
index to 23 from a high of 28 in September.
Microsoft Could Gain
Microsoft, the biggest company in the S&P 500, fell almost 4
percent last week. The No. 1 software maker has tumbled 22 percent
so far this year.
Price Headley, president of BigTrends.com, a stock and
options advisory firm in Lexington, Kentucky, said Microsoft could
be poised to rebound. He pointed to a technical indicator showing
that the stock closed below its 200-day moving average on
Wednesday. When the price falls below that line it ``has
historically been an excellent time to buy,' he said.
For 14 of the last 17 occasions when Microsoft has dropped to
its 200-day moving average, the stock has gained an average of
26.1 percent in the next four months, Headley said. That compares
with an average drop of 7 percent on the three occasions it fell
over the four months.
Headley recommends buying call options that allow the holder
to purchase the stock for 100 by July 20 on expectations the stock
will move higher within the four-month time frame.
StoneRidge Investment's Cook is considering adding to the
Microsoft shares the firm owns. In the interim, he's been buying
semiconductor equipment maker Applied Materials Inc. and computer
network equipment maker Extreme Networks Inc.
This week, investors will be looking to February's
unemployment report and changes in average hourly earnings to be
released on Friday for more evidence of the size and possible
timing of Federal Reserve interest rate increases this year.
``If hourly earnings growth is above the 0.3 percent
expected, it may be the confirmation that Greenspan is right and
inflation is ticking up,' said Michelle Clayman, chief investment
officer at New Amsterdam Partners LP, which manages $1 billion.
``That could make for more bumps in the market.'
Companies expected to report earnings include Dayton Hudson
Corp., Litton Industries Inc. |
