Yaacov, Tech stocks seem to be a new category of growth stocks.
The blue chip growth stocks led by INTC and MSFT certainly have outperformed the mainstream growth stocks. Many still say technology is still cyclical like capital goods companies (GM). I don't believe that is true as it once was. I still would call them growth stocks just like biotechs are growth stocks. Techs seem to want to have their own category as they have led this last leg of the bull market. Of course the networking stocks have led the correction over the past couple months, but have recovered nicely this week.
It wasn't too many years ago that INTC was a value stock (for a tech, anyway) with a PE of 12-14. In those days it would have handled a bear market better than today. If we had a very blooy bear market, like '73-'74, INTC could lose half its value, just like any company trading at 20+ times earnings.
However, lets not confuse a bear market with a recession. If the economy was good at the same time (like now), the industry and PC growth would continue to expand. Intel could capitalize on this environment more so than other companies. Because of Intel's cash position it could buy competitors, it could market as usual to gain the remaining market share. It could buy back more of its own shares. The company isn't nearly as dependent upon its share price as others are. A bear market in an expanding economy would represent an excellent buying opportunity.
If a recession did come along with the bear, industry growth would slow down, slowing Intel's revenue and earnings growth. Andy Grove might call this scenerio a "strategic inflection point" Of course the company would handle this in the same style they have handled other crises, with superb judgement and execution. Long term shareholders would be rewarded as they have been in the past. If your horizon is long enough, this would be a time to add to your long positon, just like the other times the share price has been down.
There are better stocks to weather a bear market. My current favorite is Chrysler with a PE of 5.8 and a dividend yield of 5.33%. Of course its tough to beat cash in a serious bear market. I am not bearish, so I am continuing to add to my INTC.
Jon |
