>January 7, 2001
Yes, the technology sector has been hammered. Yes, there are questions about earnings growth in the sector. But no, investors should not abandon technology stocks, investment professionals say.
"You don' t want to give up on tech stocks," says Richard Nash, chief market strategist for Key Asset Management, a unit KeyCorp in Cleveland. "That is where a lot of growth in the economy is going to be. You just have to be more selective."
But how do investors go about trying to determine which tech stocks still hold promise?
"The first thing to understand is that you don' t understand (technology)," says Scott Satterwhite, an Atlanta-based money manager for Artisan Partners of Milwaukee. "The first thing you have to worry about is whether (a company' s) products and services are going to be relevant."
Artisan Partners is starting to look in the technology area now. "We' re searching through the rubble, because our sense is there are some opportunities," he says.
Satterwhite recommends that investors looking into technology do plenty of homework. Once they identify a specific sector to look at, they should read as many 10-Ks -- annual reports filed with the Securities and Exchange Commission -- as possible, Satterwhite says.
Read them "to get some sense of what these companies do, what they say they do, and what their competitors say," Satterwhite says. "You can read 10 or 15 of these and start from a position of knowing something. That' s a much better approach than reading magazine articles (or) listening to analysts."
After all, he adds, "if you can' t understand it, you shouldn' t invest in it."
Satterwhite also recommends looking for companies with strong balance sheets, because of the need for those companies in the technology sector to invest in research and development.
"You' re going to have to fund that, whether you are doing well or not," he notes.
Also, investors don' t want to pay too high a price. "You want to buy low expectations," he says.
That way, Satterwhite explains, if promise doesn' t become reality, the loss has been limited.
And, he adds, it pays to diversify. That reduces the risk of not understanding technology stocks.
In picking potential sectors in which to invest, Nash of Key Assessment Management suggests staying away from commodity areas, like personal computers.
"You want to look at sectors where value is being added by the company," he says, or where advances in technology are likely. "Areas we like are storage, enterprise hardware -- servers -- (that) we think will continue to have a lot of demand. Fiber optics is another area where we remain pretty positive."
"A lot of the fiber-optic equipment laid in the ground, probably 70 to 75 percent of it is antiquated already," Nash says.
"The telecom sector has been brutalized, (but) we think there is probably some pretty good value there," he says. "But it' s an area where you' re going to have to be patient."
The reason for that is the price of data transmission is coming down because of too much capacity, Nash explains.
He likes WorldCom, BellSouth and SBC Communications.
Nash also likes Amazon.com because "of what they know about their customers and their buying habits."
"That is the information that is going to be valuable to companies sometime," he says. "I think you' re going to see some of the better companies in the sector merge. Also, AOL. We still like Cisco, (and) we' ve started to nibble at Texas Instruments and Nortel."
One thing Nash wouldn' t recommend is trawling for bargains among smaller companies.
"Within technology, I don' t think you want to bottom fish the second-and third-tier companies," Nash says, noting that he' s often asked if it' s time to buy a particular stock that has dropped precipitously.
"For a lot of them, the answer is still "No.' " |
