Barton Biggs wrestles with the tech conundrum in his latest Morgan Stanley commentary
and, noting the recent big bounce, sadly concludes that "most of the fun is over." He
relates that the hottest tech companies of one cycle rarely survive as growth stocks into
the next. Because technology is so perishable, he wonders whether Caterpillar doesn't
have a superior global franchise to Cisco and opines that certainly Coke does.
As for valuation, Barton throws up his hands. The Morgan Stanley High-Tech Index
trades at 59 times mean and 47 times median earnings estimates for this year. And he
asks rhetorically, is Cisco reasonable at 44 times estimated '01 earnings, 95 times cash
earnings and 66 times 2002 profits? Or EMC at 42, 33 and 35 times, respectively?
Juniper Networks is going for 65 times this year's estimate, 54 times next year's. Can
you really credit that these and companies like them have a shot at compounding
earnings 30% a year?
As he observes, such companies may be high growth, but they're also highly cyclical
capital-goods producers that for the most part generate no free cash flow. And, to make
matters worse, the capital goods they produce "have to be reinvented every few years." |
