Bullish Blodget: Hot technology stocks seem to be driven by their own upward momentum, not by fundamentals like multiples of earnings or revenue. What's going on? Merrill Lynch analyst Henry Blodget, one of the top Internet bulls, believes stocks are rising on the overall promise of the Internet, but not always on the promise of individual stocks. "The momentum can be justified by fundamentals," he tells Upside Today, noting that e-commerce is going to be a huge market. "But the valuations are very hard to justify. People have to realize that the current multiples for the vast majority of companies are unsustainable."
We are currently in a post-valuation market, Blodget opines. Regardless of whether that's a good thing, this means investors' top concern isn't whether a stock trades at 50 times earnings or 350 times earnings. "For the past five years, valuations haven't mattered a bit. Over the last five years in technology, deciding something is overvalued has been a terrible reason not to buy. Look at Microsoft, or Cisco, or Yahoo," Blodget says.
The driver of this trend is the fear that investors will miss out on the next Microsoft, Cisco or Yahoo. "Traditional valuation parameters didn't allow you to get in early enough,” he explains. Microsoft and Cisco, for example, looked too expensive five years ago. But both stocks have soared since then anyway.
Don't expect hot Internet stocks to keep going up without pause, however. Blodget points out that it's typical for business-to-consumer Net stocks to correct (drop by at least 10 percent) in the first half of the year. But with the momentum shifting toward business-to-business Net stocks, Blodget isn't making any predictions about 2000. Perhaps predictions are as old-fashioned as valuations.
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