from Fortune,
Cover story Investor's Guide 2000: The Next Big Things
The Next Big Things
E-Business Outlays Will Boom
By Julie Creswell
Pretty much since the dawn of the assembly line, American business has sought out ways to improve productivity. If you could build a widget better, faster, and more efficiently than your competitors, your company would survive and prosper.
In recent years, achieving productivity gains has meant spending lots of money on increasingly sophisticated computer technology. That isn't going to change a bit as we head into the new millennium. But now more and more of that money is being spent on e-commerce strategies. The stocks we like, Oracle and IBM, are helping other companies move into an e-world, as they themselves adapt to it.
Oracle has long been a leading provider of database management systems. But Oracle recognized a few years back that its growth lay in providing solutions for e-business. So instead of offering pieces of the e-puzzle, Oracle offers a total e-package. "This is what any unified Internet e-commerce strategy needs," says Vijay Singh, senior equity analyst at Founders Funds. And while Oracle's stock has more than doubled this year and sells for 73 times estimated 2000 earnings, analysts say the price doesn't fully reflect the stock's potential. Oracle's emphasis on e-commerce solutions could well push its long-term 25% earnings growth rate even higher.
Like Oracle, IBM had to adapt to the new economy a few years back when it foresaw a slowdown in its hardware business. So it beefed up its software and services groups and touted e-solutions for business. By 1998 services accounted for 35% of IBM's sales. What's more, services are an area that's likely to continue to grow as IBM's e-commerce business expands. "Most companies aren't going to set up Websites and systems by themselves," says Marshall Acuff, a Salomon Smith Barney strategist. "They're going to have somebody come in and advise them."
Even so, IBM still gets more than 40% of its revenues from its hardware business, which saw sales plummet after customers slowed their buying ahead of Y2K. That forced IBM's shares down sharply late in the year, and now the stock is off 25% from its 1999 high. But we think this presents investors with a good opportunity to buy Big Blue on the cheap. "IBM is going to see good demand once this Y2K slowdown is over," says John Ballen, president and chief investment officer at MFS Investment Management in Boston. And with a P/E ratio of 25 times 2000 earnings, IBM represents a rare find in the tech sector: value. |
