Suddenly, Technology Stocks Look Good Again
_____________________________________________________________
By Chet Currier
Bloomberg News
Sunday, November 19, 2006
Computer, Internet and telecommunications stocks are suddenly enjoying a resurgence, and some of the biggest beneficiaries of the rally have been value-oriented mutual funds, which until very recently would never have gone near a technology stock.
As the U.S. stock market has embarked on a strong advance since mid-year, the long-depressed Nasdaq Composite Index has played a starring role.
The index, 11 of whose 12 largest components are tech stocks such as Microsoft Corp., Intel Corp. and Dell Inc., climbed 21 percent from July 21 through the middle of last week, including dividends. That eclipsed a 13 percent total return for the Standard & Poor's 500-stock index and a 14 percent gain for the Dow Jones industrial average.
Talk about a role reversal. While the Dow has been hitting record highs and the S&P 500 has climbed to a six-year peak this week, the Nasdaq index remains more than 50 percent below the lofty heights it reached in 2000.
But if a particular group of stocks is down, that doesn't mean it's out. In keeping with their long tradition of bargain-hunting among neglected sectors of the market, several prominent managers of value funds began buying tech stocks a year or two ago. That put them in good position to reap the rewards of the Nasdaq revival.
Growth-minded funds such as the Pin Oak Aggressive Stock Fund (largest holding: Cisco Systems Inc.) and the Fidelity OTC Portfolio (largest holding: Google Inc.) were near the head of the pack, with gains of 28 percent and 25 percent, respectively, since July 21.
But look at some of the others keeping them company: the Longleaf Partners Fund, up 19 percent; the Oakmark Select Fund, up 16 percent; and the Legg Mason Value Trust, up 15 percent since July 21.
Longleaf Partners' largest holding, at last report, was Dell, the personal-computer maker. Oakmark Select had good-sized stakes in both Dell and Intel.
Legg Mason Value Trust, under manager Bill Miller, has long been an object of controversy among value purists with its taste for the likes of Google and Amazon.com Inc.
Miller is also famous for "the streak" -- an unrivaled run of 15 consecutive years in which his fund has beaten the S&P 500. The streak is in great jeopardy in 2006, with the fund's year-to-date gain through Wednesday of 4.5 percent still trailing the index by more than 9 percentage points.
Even so, as a holder of Value Trust shares in a retirement account, I'm glad I didn't jump out a few months ago just because Miller looked to be having a sub-par year.
One obvious message is that experienced value investors aren't doctrinaire, insisting on sticking to old-line industries such as utilities or steel. If the numbers are right, they are ready to warm up to whatever is getting the cold shoulder.
Beyond that, the tech rally raises all sorts of interesting questions. Is this darling group of the 1990s ready for some sort of extended run? If so, does the global economy as a whole stand to benefit?
Richard Parower, manager of the Seligman Global Technology Fund, envisions a new cycle of business investment in high-tech equipment. "These cycles typically come around every seven or eight years," Parower said in an e-mail note last week. "Current systems have been fully depreciated and U.S. companies are eager to start taking advantage of productivity gains from new software and services." His specialized fund sports a 23 percent gain since July 21.
Back in the late 1990s, a runaway rise in tech stocks got out of hand. It set the market up for a painful letdown when many of the wildest hopes for the so-called New Economy proved impossible to fulfill. But there was always a solid core of real economic value there, created by the Internet and other innovations.
Tech stocks made trouble the last time they got hot. This time, maybe not. |
