Interesting Article on Nasdaq 6000.
Flextronics mentioned as a Tom Marisco pick.
March 10, 2000
Heard on the Street: Who Can Carry the Baton
In the Run Toward 6000?
By TERZAH EWING / THE WALL STREET JOURNAL
The Nasdaq Composite Index's recent burst above 5000 has resembled a relay.
One sector of popular technology companies runs a 1,000-point lap, gets a muscle cramp, then passes the baton to a new group of hot stocks that sprint the next lap even faster.
The question now: Are there any runners left on the team to complete a lap to 6000 -- and if so, where will they come from?
Long-term technology bulls still are high on the kinds of companies they liked during the quick run to 5000. Those more skeptical are unsure that the tech rally can possibly go on.
"Nasdaq is just unbelievable," says Richard Weiss, manager of Strong Opportunity Fund and Strong Common Fund. "The factors that started [the move] are valid. But it's like gravity has ceased. Once you get past the pull of gravity, you just keep going until you hit something. People are probably going to keep buying the stocks they already own."
Of course, some skeptics raise concerns -- gasp! -- that the Nasdaq, with its lofty valuations, may be headed in the other direction. But if the upward trend continues, the winners on the road to 6000 could differ from those that led the index to 5000, however. While technology has been a consistent theme, there was a clear change in leadership among the index's stocks between Dec. 29, 1999, when it first closed above 4000, and Thursday's record close above 5000.
Stocks that pushed the 4K race, including behemoths such as Microsoft and Dell Computer as well as trendy starlets such as Qualcomm and Yahoo!, gave way to 5K upstarts such as PMC-Sierra and Juniper Networks (Juniper is such an upstart that it wasn't public a year ago).
More broadly, the sectors those stocks represent show a clear shift out of formerly sexy groups such as software and Internet service and content providers. This time, investors decided to pour money into revitalized sectors, including semiconductors and biotechnology, plus some new ones, such as business-to-business Internet, fiber-optic and Internet equipment companies.
(To be sure, there are perennial favorites that helped the Nasdaq Composite reach both 4000 and 5000. Specifically, those companies were Cisco Systems, Oracle, Ericsson, Sun Microsystems and JDS Uniphase.)
Such a shift into still-newer areas could happen again. But fans and skeptics alike say the sky-high valuations of Nasdaq's darlings will make it tough negotiating the market, whether it goes still higher or turns tail, sticks with the 5000 winners or finds new sectors to reward.
Tom Marsico, head of Marsico Capital Management, says: "The fundamentals of a lot of the companies that have led the most recent move are going to continue to be quite strong. But I do feel the valuations are stretched. To say [current popular stocks] are going to continue performing at the recent rate is a tougher task. You're going to need to see a resting in that group."
Mr. Marsico says he always has preferred picking single stocks rather than selecting sectors. This approach, he says, will be "even more important" now. Some of his recent picks: Entrust Technologies, which helps its client companies make Internet and intranet connections more secure, and Flextronics International, an electronics maker.
He also says some of the old guard -- large Nasdaq stocks such as Microsoft and Dell that slept through the recent run -- could wake up and help propel the market-value-weighted Nasdaq Composite to a new high.
Microsoft, which is battling the government in a high-profile antitrust case, "didn't participate in this rally," Mr. Marsico says. "If you get a favorable ruling from the Justice Department and see some momentum in Windows 2000 sales, you might see it come out of its shell."
Keith Mullins, a growth-stock analyst at Salomon Smith Barney, agrees that buying broad sectors isn't likely to work as the market reaches nosebleed levels. "We'll subsector out the broader sectors," he says. "It won't just be any old semiconductor stock that does well."
Semiconductor stocks Mr. Mullins likes: Altera, Xilinx and PMC-Sierra. He also favors services companies such as online recruiting company TMP Worldwide and, ultimately, companies such as telecommunications and "e-business" advisory firm Management Network Group, which tells others "how to use their bandwidth."
Investment bankers and venture capitalists, who sit astride the still-hot market for initial public stock offerings, say they expect enthusiasm to continue for Internet companies in business-to-business and infrastructure.
Ruth Porat, a managing director at Morgan Stanley Dean Witter and co-head of technology investment banking, says she expects "the Internet will continue to lead because the market opportunity is so large for companies that can cut across geographic boundaries and product areas."
Infrastructure is likely to stay hot, says Gill Cogan, a general partner with Silicon Valley venture-capital firm Weiss, Peck & Greer. He also says optical-networking firms such as Harmonic and Ciena could continue to climb. "People should not assume that optical networking has had its run," he says.
Yet even optimists are a tad cautious, suggesting a run to 6000 will likely be volatile and uneven. "We continue to be very focused on business-to-business," Morgan Stanley's Ms. Porat says. "But our expectation is that we're going to see a lot of carnage in the area. The winners will be huge, but it re-emphasizes that you need to be selective."
In particular, the recently hot biotechnology sector is one that many are approaching with uncertainty. A rash of popular IPOs from companies such as Sequenom and Diversa has fed a recent renewal of the sector.
But many mutual-fund managers and even venture capitalists are wary of biotechnology and genomics firms because they spend so much money on research and development. Moreover, their end products could fail if they don't win U.S. Food and Drug Administration approval. Such factors helped quash the last biotech boom in the early 1990s.
"Can you imagine if the FDA had to approve Web sites?" Strong Funds' Mr. Weiss says. "About 2% of them would make it."
Write to Terzah Ewing at terzah.ewing@wsj.com
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