Tech stocks may be in trouble, analysts warn
Thomas Hirschmann
Financial Post
Analysts have raised warning flags about the short-term outlook for
technology stocks, with the threat of higher interest rates pushing the
Nasdaq composite index down 10% in three weeks.
But they remain optimistic about some sectors' longer-term
prospects, singling out the potential of fibre-optics manufacturer
JDS Uniphase Corp.
"While there has been much carnage, we feel that there is more to
come," said Levesque Beaubien Geoffrion Inc. in a report written
by quantitative strategist Martin Roberge.
He said tech stocks normally have a downside of 15% to 20% and
there is still much downside left "considering the still-overbought
conditions."
Levesque examined market multiples and concluded it would
recommend investors stay out of the sector until the fourth quarter
-- a seasonally strong period for techs.
Analysts at Salomon Smith Barney Inc. warned in the newsletter
Equity Strategy that companies may borrow from the first quarter of
fiscal 2000 to meet fourth-quarter targets, which could make the
beginning of 2000 "difficult." Relatively full valuations may discount
much of the upside, leaving more risk on the downside.
Salomon Smith Barney said, however, that certain stocks offer
value with strong long-term demand and relatively low valuations.
It was particularly keen on the communications segment, highlighting
JDS as a company projected to grow at a 50% annual rate for the
next five years.
Analyst Liisa Bogarty compared JDS with Cisco Systems Inc.,
which trades at a similar multiple. Given that JDS is predicted to
grow at twice the rate of Cisco in the next five years, "the upside
potential appears greater for JDS."
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