To: Mr. BSL who wrote (10134 ) 11/30/1999 8:58:00 AM From: Allan Harris Read Replies (2) | Respond to
Raise your hands if you think the NASDAQ is overvalued relative to the S&P.....but first, read this from the other B-Man:gruntal.com Last week, I raised my year-end 2,000 NASDAQ composite target to 4,300. This new target reflects the higher long-term (5year) earnings growth rate of the NASDAQ composite when compared to the S&P 500. By our estimate, the NASDAQ composite's price-to-earnings-to-growth rate is approximately equal to the S&P 500 using twelve-month forward earnings estimates (See Table 1). As of October 29, 1999, the NASDAQ traded with a price to earnings multiple 1.79 times it's estimated long term growth rate of approximately 30% while the S&P 500 traded at 1.73 times it's long term estimated growth rate of less than 14%. This suggests to me that technology valuations are not excessive given the strong, underlying growth in earnings. Internet software and content providers should materially benefit from the massive, ongoing investment in network architecture by companies such as MCI Worldcom and AT&T. This build-out of broadband capability whether through satellite, cable, optical or otherwise enables companies such as Real Networks, Yahoo!, Macromedia and Net2Phone (in addition to the traditional telcos) to provide a broader array of Internet based services more effectively and at a lower cost while avoiding costly, direct investment in building the network backbone.
