High-tech investors told to 'stay calm' [Woo recommends ASND]
theglobeandmail.com
Analysts recommend sticking to basics
Wednesday, September 2, 1998
By Tyler Hamilton and Mark Evans
The Globe and Mail
Technology investors are being told to stay calm and stick to the basics as they mull over the
aftermath of Monday's sudden market drop, led by some of the biggest stars in the high-tech
sector.
The advice from industry analysts for the moment is simple: Invest in companies with profits,
cash flow and strong revenue.
Mark Lawrence, president of CML Capital Ventures in Toronto, said the mantra for
investors still keen about technology stocks should be "selective buying," a far cry from the
bandwagon mentality that sent many high-tech stocks soaring in recent months.
"I don't think [investors] should abandon the sector at all," he said. "I still think technology will
be a strong part of corporate expenditures around the world and will continue to be used as a
way to improve margins."
Roger Dent, research director at Yorkton Securities Inc. in Toronto, said current market
conditions play in the hands of experienced, patient and knowledgeable investors. He said
some investors are feeling uncomfortable and bending to the market's mood.
"In times like this, the first reaction that investors have is to head for the largest, most liquid
stocks," Mr. Dent said. "You also get occasionally short-sighted panic-like selling. This can
create some of the best buying opportunities for [more experienced] investors."
Experience is why Mr. Lawrence remains an avid supporter of Geac Corp. , whose stock
has fallen 50 per cent in the past five months because of concerns that its profit growth may
be slowing. He said Geac is a good example of a solid company trading at a far lower
multiple than its U.S. rivals, thereby offering a good buying opportunity.
At the other end of the spectrum, Mr. Lawrence said, are Internet-based stocks, which have
shown the ability to climb as fast as they can decline. While the Internet is quickly becoming a
legitimate business and communications tool, Mr. Lawrence said he remains leery of
companies with high market capitalizations but weak fundamentals -- such as profit, cash flow
and revenue.
The panic buying spree that just months ago catapulted young stocks -- such as Internet
company Amazon.com Inc. -- to great heights turned on Monday into a blue-chip flea
market, where the name of the game was sell, sell and sell more.
The hardest hit high-tech blue chips were Dell Computer Corp. of Round Rock, Tex.,
Cisco Systems Inc. of San Jose, Calif., and Murray Hills, N.J.-based Lucent
Technologies Inc. , whose stocks were battered by percentage losses in the double digits.
Microsoft Corp. of Redmond, Wash., came close to the 10-per-cent mark, falling $9.31 to
$95.94.
Dell took the hardest punch. It plunged $18.75 (U.S.) on Monday to $100 on the Nasdaq
Stock Market. It was also the most actively traded stock for the day, with trading volumes of
48.6 million shares.
Observers say it was only a matter of time before blue-chip technology stocks felt the
tornado that for months has been hammering the sector's less-stable trailer park variety. But
now that all have felt the storm, they say Monday's injured will be the first to heal.
"We think [large caps] will be the first to bounce back," said David Powers, an analyst with
Edward Jones in St. Louis. "Our message is to stay calm, stay invested, and if you have some
money to put to work, now is a pretty good time to dip your foot back in the water."
Indeed, many of those hit Monday did bounce back yesterday. Cisco was up $8.12 to close
at $90, Dell gained $8.38 for the day, closing at $108.38 and Microsoft was up $5.31 to
$101.25. One exception was Amazon.com, which fell $3.80 to $79.95.
Mr. Powers said investors need to recognize that there are many stocks floating around that
are well below the market average -- some as much as 50 per cent off their 52-week highs.
That's not to suggest that the market is no longer volatile. Mr. Powers said there could be
more downside in the near term before a new bottom is formed. "But once people get the
green light to get back into the market, [high-tech blue chips are] the first place they'll look."
Richard Woo, an analyst with Thomson Kernaghan & Co. in Montreal, said it's a great time
to buy the shares of North America's leading telecommunications and networking equipment
companies, such as Cisco, Lucent and Ascend Communications Inc. of Alameda, Calif. He
said these companies are world leaders and are showing no signs of slowing profit and
revenue growth.
"It's time if you're a long-term investor to start picking up some of these companies. The U.S.
companies are at the leading edge of technology. This is not a time to hold tight, this is a time
to look at the opportunities."
Mark Pavan, an analyst with Yorkton Securities, said the recent hit on high-tech blue-chip
stocks doesn't have much impact on the stock of smaller Canadian software companies.
Whether an investor is looking at a Northern Telecom Ltd. or a smaller company like
OpenText Corp. of Waterloo, Ont., the same rules apply, he said. "We're telling our clients
to stick with the fundamentals."
Hi-tech stocks
Yesterday's 52-week 52-week
Stock close, $U.S change high low
IBM $117.94 +5.31 $118.94 $110.75
Microsoft 101.25 +5.31 101.75 94.5
Dell Computer 108.38 +8.38 110.00 93.75
Compaq Computer 29.94 +2.00 30.19 26.94
Yahoo! 72.25 +3.25 76.50 59.00
Amazon.com 79.95 -3.80 86.38 65.00
Cisco Systems 90.00 +8.12 90.62 81.87
Lucent Technologies 77.25 +6.12 78.62 70.87
Ascend Communications 38.06 +2.87 38.12 32.62
S&P 500 compsite index 994.24 +36.96 1,000.71 939.98
S&P 500 high technology subindex.820.45 +51.52 823.20 760.95
Nasdaq composite index 1,575.09 +75.84 1,576.84.1,477.06
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