Commentary on Dell going forward from Street.com:
Bumpy Road May Be Ahead for Techs
By Andy Kessler
Special to TheStreet.com
2/23/99 10:48 AM ET
Investment returns in techland in 1999 are assured, or so goes the prevailing opinion. But in my view, it ain't going to be that easy. To help you understand why, here are a few thoughts on how the technology world is changing.
Big-Cap Equals Big Risk
Big-cap tech stocks are stretched. Ever-larger index funds, closet indexers (like Fidelity Magellan, perhaps) and even value funds (the Legg Mason Value) keep buying the S&P 50 and the Nasdaq 20. These are great companies, but multiples of 50 to 75 times earnings mean they are stretched like a huge rubber band that most people think is going to fly across the globe.
The risk, of course, is that when it snaps back, it is going to hurt a lot of fingers. In other words, when index funds stop working, the unwinding is going to be nasty. Fundamentals (except for Dell (DELL:Nasdaq)) seem fine -- just don't expect 25% to 50% annual returns from large-cap tech stocks.
Speaking of Dell, it's funny that the Street still doesn't know what went wrong there. But it's clear that the company's growth, which was in the 50% range, is falling to a range of 30% -- and only 7% on a sequential basis. The former supported a stock price of $110 -- the latter, maybe a price of $40 to $50 a share.
Don't get me wrong, Dell is a great company, and judging from the overflow crowds at the Goldman Sachs technology conference, Michael Dell is a rock star for people who wear ties. But when you are priced for 50% growth, there is zero room for error.
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