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Strategies & Market Trends : Zeev's Turnips - No Politics
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To: limtex who wrote (36033)3/2/2002 9:24:47 AM
From: t2  Read Replies (4) of 99280
 
limtex, I don't dispute an economic rebound. I am not even a believer of a double dip recesssion.

My point is simply that a economic recovery should lead one to buy economically sensitive stocks.

Buying for example Oracle, Csco, MSFT or all those high fliers is not the way to play this. The spending that took place back in the late 1990s was to get the internet ready; now we are in a maintenance phase with plenty of excess capacity. That means the companies can't grow earnings..oracle, sunw...no emerging companies to create any huge demand for such suppliers. That is why we keep getting negative comments from CEOs even though the economic news is positive.

Techs should have some growth but why buy something with a PE of 40, 50, or even 100?
Stick to old cyclical stocks that are also rebounding but with better valuations. If you look at the month of February you can tell that is where the money is going; these types of companies also have stock buyback plans but issue fewer employee options. The only reason a MSFT or Cisco buys back stock is offset dilution from issue employee options. A company like MSFT would not dream of buying options at current valuations otherwise, imho.

That way you participate in the upside but your downside risk is far lower. Techs are subject to massive declines as the PE argument is going to get more and more acceptance.

jmho

edit: there are tech exceptions that might be great buys...Intel is my favorite even though it has a high PE. Cisco, msft, orcl, sunw -- I would not touch. Might play the odd bounce in stock price but would not hold on to any of these over a longer term.
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