***OT*** But perhaps On Target
Wrong! Dispatches from the Front: The
Net Stocks -- on Fire for a Reason?
By James J. Cramer
12/21/98 6:15 AM ET
Here's one for all of you bears to ponder: How strong can the
fundamentals be in some of these tech stocks for them to
run like this?
Inside-the-box thinking says that the market is just crazy
and that Intel (INTC:Nasdaq) and Microsoft (MSFT:Nasdaq)
should have stopped going up by now.
But what if it turns out that the fundamentals are on fire?
What if it turns out that the Net has energized everything
and made it so that there are more tech purchases, both
corporate and individual, than anybody expected? What if it
turns out that the reason tech is going up is because the
earnings are going to explode?
How strange would this be? If you consider the rapid takeoff
of the Net, you might be able to determine that that these
stocks turned out to be cheap on next year's earnings. And
you would figure that the move, frequently ascribed to short
squeezes and a lack of better investment alternatives, is
really just an anticipation of a major revision of earnings.
It wouldn't surprise me.
In the mid-'80s there was a tremendous hue and cry when
Merck (MRK:NYSE) passed General Motors (GM:NYSE)
in market value. How could the ultimate bricks-and-mortar
operation be trumped by a pill maker? Same thing was said
when Coke (KO:NYSE) topped both of these companies. I
know in the age when Buffett endorses Coke, it seems
weird, but the most fashionable trade among the
intelligentsia at the time was to go long GM and go short
Merck or Coke and bet they would have to meet! What a
hoot!!!
Later on in the early 1990s people marveled when tech
started putting on its big market cap. The intelligentsia at
that time said tech was cyclical and that anybody who
invested in it for the long haul would get run over by the
investors in pill makers and soda syrup. I always felt
painfully alone at the time when I ventured that these stocks
were going to become staples of portfolios.
Now I think the same thing may be happening to
investments in the Net stocks. First is a bit of empirical
proof. I track the performance of new indices closely. A new
index is usually a sign of a top in that segment. In fact, from
the time that an index is announced to when it has options
trading on it (usually a matter of a few short months) the
index has almost always peaked! Not this time. The DOT
jumped 50% from the time it was announced to when
options traded, and it keeps going higher even now.
Second is anecdotal. My wife always puts hints for presents
on the steps on the way up to my third-floor office. Last
night while going up to file this story, I saw an ad for eBay
(EBAY:Nasdaq) she had ripped out from Art and Antiques
with some suggestions and a note saying it is not too late to
go online and get these. Last year my wife would not have
even heard of eBay; now it joins Amazon (AMZN:Nasdaq)
among the primary places that keep me out of the Short
Hills mall.
Finally, if you knew which money managers had big stakes
in these stocks, you would go crazy! Every hot manager I
know has giant positions in these things. Come the next
year, do you think new money is going to go to the macro
clowns who blew you up in the summer, or the hedge funds
who derided the Net as they derided Intel and Coke before
it? I don't think so. It is going to go to the hot hands, which
is why I intend on pricing out some deep-in-the-money DOT
calls today. First thing.
Regards
Glenn |
