SATURDAY GROUP: Don?t Panic!
individualinvestor.com
While panic seemed to overtake the markets on Friday, underlying fundamentals of companies are sound and improving. The profit picture is robust and volatility, while disheartening, is part of the new market environment that we are in.
What?s more, I am encouraged by the strong profit reports out last week from chipmaker Advanced Micro Devices (NYSE: AMD - Quotes, News, Boards), computer manufacturer Gateway (NYSE: GTW - Quotes, News, Boards) and workstation pioneer Sun Microsystems (NASDAQ: SUNW - Quotes, News, Boards). I expect continued robust earnings from other tech bellwethers in the weeks ahead.
Why am I encouraged by results from companies that some argue were priced to perfection? Because over the past few days many pundits have expressed skepticism over the ability of companies like Sun to hit estimates and others questioned whether there would be a resumption in PC demand following the Y2K lockdown.
I have always argued that markets are rational and they weed out the excess. While this holds true today, the process of weeding out the excess has resulted in too much deflation in the prices of many solid, well-financed companies. It is those companies that investors should focus on.
Why do I think the markets will come back? Because, as even Alan Greenspan concedes, we are in extraordinary times. I believe that inflation will remain in check. Competitive pressures will result in the inability of companies to pass costs onto consumers and productivity improvements are impressive and will continue.
We have seen panic selling and I believe that investors have repatriated money form the markets to pay taxes this past week. I believe that there is a lot of money on the sidelines waiting to pour into the market; institutional investors are just waiting for the dust to settle down.
When the dust settles, and I believe that it will soon, money will pour back into the markets. I predict that investors will look back on this time in six months as a historic buying opportunity.
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