End of the line for smokestack stocks
More and more investors seem convinced that, even though high-flying tech stocks are due for a correction, there's no longer any reason to put money into ageing blue chips
Matthew Goldstein
Dow Jones
Windsor Star
The steel mills and smokestack companies have had their day, believes the new breed of investor who wants the kind of growth associated with an industry in its infancy.
NEW YORK - Geoffrey Gallup sees no reason to buy the stock of some ageing blue-chip company, no matter how cheap its shares may be. Like many investors, the corporate executive for a Midwestern air-freight company says there's only one place to put his money, and that's in technology stocks.
Mr. Gallup, who's been investing online for about a year, is buying shares in the companies laying the pipes and pouring the cement for the Internet-driven new economy. In his mind, no financial services firm or manufacturing outfit could ever match the growth potential of a computer networking giant like Cisco Systems or a communications equipment maker like Lucent Technologies.
"Every dog will have his day and the steel mills and the smokestack companies have had their day," says Mr. Gallup, secretary and treasurer of Omaha, Neb.-based Suburban Air Freight. "They are not going to have the kind of growth as an industry in its infancy."
Yes, he knows the valuations of many technology stocks are too high -- even absurdly high. He also doesn't doubt that the high-flying Nasdaq is due for a correction. But he says the old economy stocks that comprise the Dow Jones industrial average -- the banks, the retailers, the automobile manufacturers -- will never again post the kinds of returns they did in their heydays.
And on days when the Dow drops like a stone while the Nasdaq soars, who can blame investors like him for feeling that way? Wall Street analysts can point out all the blue-chip values they want; investors are turning a deaf ear. For now, at least, investors are saying tech and Internet stocks are the only parts of the market where they can count on solid returns.
"The Dow has just totally scared me away this year," says Jim Bogart, a self-employed carpenter from West Palm Beach, Fla., who trades online about 20 times a week. He began investing online last October, and since then has mainly bought and sold Internet stocks -- even though he thinks much of the sector is overvalued. "I guess it's a gamble with the Internet stocks," he says. But for now, he'll keep rolling the dice.
Online investors seem to be buying the conventional Wall Street wisdom that tech and Internet companies are less sensitive to rising rates than their old economy counterparts. Their voices suggest that if Federal Reserve chairman Alan Greenspan hopes to stem soaring prices for Nasdaq stocks, his interest rate hikes will hurt only the old-line stocks epitomized by the Dow, which is already approaching a bear market-sized decline from its lifetime high.
One tech bull, Christin Wolff, says it would take nothing less than a war between China and Taiwan to shake her confidence in techs. Taiwan is a major manufacturing hub for many semiconductor companies, and the California resident says she's been paying close attention to news reports about the Chinese government's recent sabre-rattling.
For his part, Mr. Gallup sees smooth sailing for the nation's economy, as long as the Fed doesn't try to "manage the stock market" by tinkering with margin lending rates. Noting that many investors are borrowing money to buy stocks, he says a tightening on margin lending could send the Nasdaq plummeting. In fact, the level of margin debt at all New York Stock Exchange and National Association of Securities Dealers member firms has risen, from $162.3-billion (US) in January, 1999 to $260.4-billion (US) this January -- a 74% increase. Some securities regulators are beginning to worry that investors may be padding their portfolios with too much borrowed cash.
The generally rosy views expressed by investors about technology and Internet stocks pretty much match the results of a recent survey by PaineWebber and the Gallup Organization. Fully 78% of the 1,004 investors surveyed said it's still a good time to put money into the stock market, despite rising interest rates. The survey also found that more investors now own shares in Internet companies than ever before. Nearly a quarter of the people surveyed said they own Internet stocks, compared to just 15% last March.
One thing that's undoubtedly luring investors to tech and Internet stocks is the confidence that they can count on them to produce quick returns. While none of the investors interviewed described themselves as day traders, many are buying and selling stocks with the hope of reaping short-term gains. Many said they'd begun trading online within the past year -- a stretch in which the Nasdaq is up over 100%.
"I look for what I think is a value opportunity with the momentum going up," says Ken Torbert, the owner of The Gingerbread Mansion Inn in Ferndale, Calif. "I stay in for the short term -- generally, only for two days at the most."
Most of Mr. Torbert's online investing involves buying and selling options on big stocks like Intel and the online brokerage firm Ameritrade Holding. A former strategic planner for a telecommunications company, he expects a wave of consolidation in the tech and Internet sectors. But technology, he says, is still a better investment bet than some old economy company. "The names will change," he says, "but the technology and the productivity advances won't go away." |
