Sonny ---from briefing.com---Updated: 20-Apr-99
Techs Unplugged
For quite some time the tech sector had been driven by two forces. The first was
strength in the large-cap industry leaders. Convinced that bigger was better,
investors poured money into the likes of EMC Corp. (EMC), Dell (DELL), Cisco
(CSCO), Sun Microsystems (SUNW), Intel (INTC), Lucent (LU), America Online
(AOL), Microsoft (MSFT) and Yahoo! (YHOO), without much concern over price
and/or value.
The second was the emergence of the Internet. Unbridled optimism over the Net's
potential led to widespread buying of virtually everything ".com." As Briefing.com
noted in a recent Brief, the disconnect between fundamentals and price action was
huge, with day traders driving stocks to unfathomable heights on the vaguest
promise of future profitability.
Over the past week, however, we have seen institutional investors rotate out of the
large-cap names and day traders dump Net stocks. What triggered the sector's
sharp reversal is tough to say exactly. Earnings concerns, anxiety over the
slowdown in the PC group, valuations and Kosovo are among the reasons given for
the change in sentiment. In reality it's probably some combination of all of these
factors.
Fortunately, none of the aforementioned factors should prove to be long-term
concerns for the tech sector. In fact, Briefing.com contends that most of the selling is
behind the group already. Using recent tech pullbacks as a guide, Briefing.com
notes that the large-cap, non-Net stocks typically slide between 20% and 30%
from their 52-wk highs. Meanwhile the large-cap, top tier Net stocks fall by
30%-40%, and the second/third tier Net stocks tumble roughly 50%-60%. One
look at the table below suggests that if the current retreat is similar to recent
pullbacks, the time for bargain hunting is close at hand. In fact, we wouldn't be
surprised to see sector mending its ways by mid-week. Bargain hunters should note
that the big names typically bounce back first.
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