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di
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yardeni.com
>>> Dr. Edward Yardeni
Chief Investment Strategist
yardeni@yardeni.com
Shant Madjarian
Equity Strategy Analyst
madjarian@yardeni.com
Amalia F. Quintana
Economics Analyst
(212) 469-5713 phone
(212) 469-5724 fax
quintana@yardeni.com
October 24, 2000
HIGH-TECH TRENDS
-Briefly-
· Earnings: The earnings outlook for the S&P universe of technology stocks remains positive.
Bottom-up forecasts show that the unweighted average earnings of the large-cap technology
stocks are expected to grow by 34% in 2001, following an expected gain of 54% this year.
Mid-cap and small-cap companies (with earnings) are expected to show gains of 43% and
40%, respectively, next year, following expected increases of 39% and 23%, respectively,
this year. (See tables starting on page 14.)
· Valuation: The S&P 500 Technology sector’s market-cap weighted P/E (using 12-month
forward earnings expectations) rose to a record 47 in March, and is now about 40, well above
the S&P 500 P/E of 23.4 (Exhibit 1). The unweighted average P/E ratios (using 2001
earnings of companies expected to have earnings) are 47, 38, and 26 for large-, mid-, and
small-caps, respectively. The unweighted average PEG ratios (P/E divided by 5-year
annualized earnings growth forecast) for large-, mid-, and small-cap technology stocks are at
1.7, 1.4, and 1.1, respectively. This suggests that if long-term earnings are on target, then
tech stocks are not as overvalued as the P/E ratios alone would suggest (see Exhibits 2 and 5
and tables starting on page 14).
· Stock Prices: The S&P Technology index has plummeted 20% since the end of August.
Unlike the “tech wreck” from March-May, which was mainly the result of a dot.com crash,
the current sell off is broadly based. The computer software, semiconductors and
communication equipment industries have suffered substantial losses (Exhibits 3 and 4).
· High-Tech Orders, Output, & Trade: Orders continue to grow at a strong pace. Notable
is the recent surge in computer and office equipment orders, with the yearly growth rate
more than doubling since the end of last year (Exhibit 6). Industrial production of computers
is up 40% over the last 12 months. The output of semiconductors is up a whopping 85%
over this period (Exhibit 7). Exports of semiconductors and telecommunication equipment
are very robust, which is a sign that global aggregate demand is still strong and that the high-tech
revolution is progressing in the global economy. More so than any other industry, tech
can grow much faster than GDP because the tech market is truly a global one (Exhibits 8 and
9).
· High-Tech Finance: IPO and M&A activity in the technology and telecommunications
sectors at near record highs over the past 12 months. Share buybacks completed sank to a
secular low. Companies with no current earnings that are running out of cash led the recent
plunge in the tech sector. The rebound was led by big-cap tech. The IPO market is likely to
become more selective, but it should continue to finance quality startups (Exhibits 10 and
11).
· High-Tech GDP: The high-tech components of real GDP, i.e., hardware and software,
increased 28% during the second quarter compared to a year ago. This was more than four
times the 6.1% increase in overall real GDP. Tech now accounts for about 30% of economic
growth (Exhibits 12-17).
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Page 2 / October 24, 2000 / Deutsche Banc Alex. Brown High-Tech Trends<<< |
