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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (30401)	1/7/2000 11:07:00 AM
From: IQBAL LATIF	Read Replies (1) \| Respond to of 50167

<<Not to Worry About High Tech Lows Thursday, Jan. 6, 2000 08:44 PDT By Richard Hefter, America-iNvest.com Technology stocks took it on the chin in recent days while cyclicals and other value stocks rose from the dead like Lazerus. A harbinger for 2000? We wouldn?t be so quick to count tech stocks out. While technology valuations have reached extreme levels, reports suggest that fundamental demand for technology goods warrant continued exposure to this albeit more volatile sector. So suggests Satya Pradhuman, director of small-cap research at Merrill Lynch. He explains that with valuation quandary typically associated with the technology sector (i.e., extremely inflated ratios that don?t always make sense with speculative, high growth stocks), ?ultimately, investors are forced to look to top-line or expectations of demand for goods and services provided by the sector to impute some valuation metric.? Granted, the Nasdaq has give back more than 6% in recent days, but Pradhuman says, ?Unless we can point to a substantial slowdown in aggregate demand, it becomes quite difficult to suggest underweighting the technology sector.? Beating the market Demand for technology goods, he says, should continue to grow at roughly 17% in 2000, ahead of 1999?s 13% pace. This should result in continued upward earnings revisions and, hence, market outperformance. ?Given that demand for technology looks healthy, our models for the returns of technology shares suggest that technology shares will also be up this year. If the general market rises by 10%, roughly its long-run average, our models suggest that technology shares should outperform, rising by 24.5%.? Pradhuman?s model assumes two Fed rate hikes of a total of 50 basis points nominal GDP increases by 4.9% this year. Although demand should be healthy, not all sectors will participate equally. Demand for electronics should moderate to 3.9% this year from 16.8% last year. Hardware and networking should see growth accelerating at about 13%. Pradhuman based his estimate on three factors, which have historically (proven through a model backtested 15 years) influenced technology spending: business needs of technology, access to capital, and overall economic prosperity. With regard to business needs, he says that margin pressures from competition and higher wages (what with unemployment as low as it is at just over 4%) force companies to cut their cost base. Technology goods help them do that. ?E-commerce technology, for example, helps companies better compete,? he explains. With regard to wage pressures, he says, ?Ultimately, this current burgeoning of technology consumption is about substituting capital for labor.? Pradhuman adds that reasonable credit spreads make it relative easy to borrow to invest in technology, and that over economic prosperity provides a backdrop that allows this growth to continue. (?You?ve got to be able to make money to spend money.?) Stocks to watch Pradhuman also sees small-cap technology companies outperforming large caps. ?Over the last few months long-term growth rates have gone up 11% for small caps we track, while only 3% for large caps.? This universe of 276 small caps has a three- to five-year growth rate of 34.8%, while the 66 large caps in his group are expected to grow 25.3% per year for the period. Stocks to consider: Merrill?s small-cap tech buy list includes Asyst Technologies (ASYT), CommScope (CTV), Hadco (HDC), and L-3 Communications (LLL). >>