Harry,
are you absolutely sure that tech stocks are "monstrously overvalued"? I think we should do some reality check and I do that on my core holdings since I have the numbers right here. As far as I know those numbers apply to most of the tech stocks but it's ironic that the most overvalued stocks (e.g. MSFT, CSCO) did suffer the least.
Stock, 98e PE, growth rate
SUNW, 11.6 15-20%
COMS, 11 25-30%
EMC, 22 30%
LXK, 12.4 20-25%
INVX, 10 20-25%
CREAF, 10 15%
QNTM, 9.5 22%
Now you can argue that the PEG measurement does not apply to tech stocks but you can do that check on a Price to Sales or Price to Cash Flow basis as well and get the same results.
This does probably not convince any bear on tech stocks because those people will argue that the turmoil in Asia will hurt sales badly. A nice argument on the surface but looking deeper into it you find it to be totally out of touch with reality. The main problems in Asia are overvalued currencies, a speculative bubble in the real estate market and a flood of cheap labor from China. This will definitely hurt bank and real estate companies and perhaps it will slow Asia's growth in the short term (nobody knows by how much yet). Nevertheless the impact of the devaluation of the Asian currencies will be much more important in the long run. Just think of all the cheap labor in Asia and all the production facilities over there. Foreign companies will be able to get components at much lower prices and thus either increase their margins or lower prices. This will fuel demand in the rest of the world for tech products.
And more importantly most people seem to forget that Europe and not Asia is the most important trading partner in the world. Continental Europe was in a bad recession the recent years but is now recovering. The economies will be back to a healthy level next year and this will definitely increase sales of techs because there are almost no tech companies over here. Also the year 2000 problem and the new European currency will be a much bigger problem over here since a lot of companies were not able to replace their outdated technology during the recession.
I also don't understand your argument about the big guys. They move the market in the short term because they follow the herd mentality and follow all these advices given by overpaid analysts. Is there really any serious investor out there who cares what those people say? Addi has given a good example with SUNW as the single best idea of an analyst at 45 and now it is just a hold. This is still the same company in the same position as it was at 26 in spring, at 50 in August and now in the 30s (actually it is in a better postion now). From a fundamental view nothing has changed except analysts just came out with all the same old FUD (NT competition, Java, MS, HP etc.) that was spread in spring. You have only to realize that 90% of the institutional investors are unable to consistently beat the market and then ask the question, do I really want to follow advices given by people who underperform the market? One other problem is that today the institutional investor is a long term investor if he holds stocks over the next weekend.
Finally, can you name a certain period in the past where someone who bought stocks did not do well over a time period of 20 years? I can't!
Certainly it depends on the stocks you buy and I may have some real dogs in my portfolio but I may also have some real good ones (if I just knew today). Diversification is the magic word. Nevertheless IMO tech stocks will probably outperform the market in the coming years.
The current turmoil in tech stocks is IMO a great buying opportunity you only get once in a while. Just as the buying was overdone in the summer people (institutionals) overdo the selling. I still believe in buying low and selling high and therefore I'm a buyer at these levels. When will you buy if not now? I certainly will take losses because I can't call the bottom but once people get rationale and greedy again we will move up much higher than DOW 8000.
Don't get me wrong, it is good to hear a contrarian view but please give me some reasons why you feel techs are overvalued and especially SUNW.
BTW, I don't feel we reached the bottom with SUNW yet because twister has not reappeared on the board ;-))
Holger |
