FUND VIEW - Dalton sees techs leading next rally
Reuters Story - May 12, 1998 23:23
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By Mark Lewis
NEW YORK, May 12 (Reuters) - Where some see an overvalued
stock market teetering on the edge of a major correction,
Stephen Dalton sees a rally in the making -- led by technology,
the very sector many bears view as ripe for retrenchment.
"We think that the drug (stocks) will start to fade a bit
here, and techs will start to take their place," said Dalton, a
portfolio manager for First Union Corp.'s First Capital
Group.
Dalton, based in Philadelphia, was product director for
CoreStates' growth equity funds and related accounts, with
about $1 billion in assets under management.
The funds recently were acquired by First Union along with
the rest of CoreStates, but Dalton said the growth-oriented
approach will not change.
"Everything that's growth is richly valued now, but
appropriately so," Dalton said in an interview.
He said the valuations would be justified by renewed
earnings momentum, especially among technology stocks.
"Tech has already weathered the storm (from Asia's economic
crisis)," he said. "They're all talking about stronger second
halves."
The technology sector has languished in the doldrums for
several months, and more recently the overall market has been
treading water as well, prompting concerns that the bull may
finally have run its course.
But Dalton said the feared correction already has happened,
a subtle, sideways retrenchment "that prepares the ground for
the rally."
Dalton identified two near-term catalysts for that rally.
First, he predicted, Microsoft Corp. and federal
regulators will reach an agreement by Monday that allows the
Windows 98 computer operating system to debut on schedule.
Then on May 19, the Federal Reserve either will leave
interest rates alone or will merely nudge them slightly higher,
allowing investors to discount fears of significantly higher
rates.
"That will allow the market to continue to move upward," he
said, with technology stocks leading the way.
Dalton said his funds had reduced their technology exposure
to 18 percent from 35 percent last summer, but are now back up
to 25 percent.
"We see the pall over the sector being lifted," he said.
Among the tech stocks Dalton likes are Ascend
Communications Inc. , EMC Corp. and Dell Computer Corp. .
"All three companies are experiencing incredibly strong
demand for their products," he said.
He also mentioned familiar names such as Cisco Systems Inc.
, Intel Corp. , Microsoft and America Online
Inc. .
"AOL is our largest position," he said.
Technology is not Dalton's only focus. He also follows the
telecommunications, health care, financial services, media and
entertainment and consumer growth sectors.
While he sees the market "at the beginning stage of the
next leg up," Dalton said he is not quite as bullish over the
intermediate-term. He cited the next American political
election cycle and the possibility of further economic fallout
from Asia as contributing to uncertainty over the next year to
18 months.
But beyond that, the continued prospects for low U.S.
inflation and low interest rates, combined with demographic
trends favoring investment, indicate good times ahead for Wall
Street, he said.
"On a long-term basis, I think the market goes higher," he
said. |
