TTOSBT, RE: "DELL, INTC & MSFT are at bargain prices in relation to their future earnings potentials. These companies will relate that to the prudent investors very soon and they will lead the market up."
But Monday and Tuesday might be choppy days. I am hanging on! :) Leigh
smartmoney.com
Tech-Stock Meltdown Pulls Down Heavyweights, Recent IPO Stars
April 14, 2000 6:08 PM
NEW YORK -(Dow Jones)- Shares of many technology companies were hammered in a fifth day of selling Friday on lingering concerns about lofty valuations and renewed fears about inflation and interest rates.
The Nasdaq Stock Market's four largest companies - Microsoft Corp., Intel Corp., Cisco Systems Inc. and Dell Computer Corp. - all fell. The fate of the Nasdaq is tightly tied to its four biggest companies, which make up nearly a third of the Nasdaq composite's total value. But the steepest declines were in some of the smaller high-tech momentum plays that have led the market both on the upside and, more recently, on the downside.
Analysts say the most fundamental reason for the drop in high-tech stocks was a growing sense that investors pushed those issues too far last year, when the Nasdaq rose an unprecedented 85%. The frenzy for technology stocks gave many young, unproven companies market values they didn't yet deserve, analysts say.
The Nasdaq Composite Index plunged 355.49, or 9.7%, to 3321.29, not only its biggest single-session point decline but its second-biggest fall in percentage terms. The worst percentage loss was a 11.35% decline notched Oct. 19, 1987, Black Monday. Friday's decline pulled the index deeper into bear-market territory, off 35% from its March 10 record-high close.
Among the wreckage, shares of Internet-software developer Commerce One Inc. fell 22%, communications-technology concern Redback Networks Inc. was off 32% and communications-chip maker Broadcom Corp. plunged 15%. Shares of VA Linux Systems Inc., which sells computers tailored to a popular free operating system and enjoyed the biggest first-day gain ever for an initial public offering in the U.S. in December, fell below its offer price. VA Linux shares were priced at $30 and reached as high as $320 in December. On Friday, the stock fell 19% to $28.94 at 4 p.m. EDT.
In addition, shares of International Business Machines Corp. and Hewlett-Packard Co., the technology companies besides Microsoft and Intel that have stocks used in the formula used to calculate the Dow Jones Industrial Average, dipped on the New York Stock Exchange. The Dow Jones Industrial Average skidded 617.78, or 5.7%, to settle at 10305.77, down 12% from its Jan. 14 record close and its biggest single-session point drop ever.
Signs of inflation in the Commerce Department's consumer price report dragged down an already turbulent stock market.
Some analysts fear technology stocks could be in for a washout lasting through Monday and a few told Dow Jones Newswires that a bout of late selling could create a "black-Friday-and-blacker-Monday" scenario seen in past precipitous stock-market declines, most notably in October of 1987 and 1998. Other analysts feel the market has bottomed out and that bolting for the exit doors now would be a mistake.
Fred Hickey, who publishes The High-Tech Strategist newsletter, told Dow Jones Newswires that the sell-off "has been a long time coming." He noted that Cisco recently had a price-to-earnings ratio of 200 despite the fact that "Cisco's average P/E from 1990 to 1998 never was above 30." Despite this month's sell-off, Hickey warned that there could be plenty of downside left: "Cisco's nowhere near a P/E of 30 yet," currently trading at a P/E of around 130.
"And we haven't even been hit with the bad news yet," Hickey added. With venture capitalists and syndicate desks wary about funding or taking public new Internet ventures given the sector's severe shakeout on the public markets, Hickey said, it will be harder for the hardware and infrastructure companies to find new dot-com customers.
Prudential Securities Inc. market strategist Larry Wachtel said the market is moving on emotion and a bottom isn't in sight. "You've got people who saw the Nasdaq rise 85% last year, and they've seen success the past five-and-a-half years. They're now meeting failure, and they're not used to it," he told Dow Jones Newswires. Wachtel said the weak trading in the final hours Friday could make for a bleak Monday.
Bill Barker, an investment strategist with Dain Rauscher Inc., said Friday's slide coincides with a change in attitude among his firm's retail clients. In prior sessions, he said, many investors adopted a "buy-on-the-dips" philosophy because they had confidence the market would quickly rally. Now, however, that complacency "is beginning to go away," Barker said. "This is the first day that we've seen, while I wouldn't say panic, I would say a lot of concern. A certain element of fear has suddenly developed on the part of investors in the high-tech sector. People are saying this thing might go a lot lower."
Most surprising has been the fact that strong earnings have been unable to prop up tech stocks with any success. On Thursday evening, Sun Microsystems Inc. posted blistering revenue growth rates. Earlier in the week, Advanced Micro Devices and a few other semiconductor makers reported results indicating that demand for their technologies has accelerated and will continue to do so through the next two quarters. But all that positive news has been tempered somewhat by heightened anxiety about weaker-than-expected computer sales early in the first quarter because of the year 2000 spending slowdown.
Although a severe drop in tech stocks would surely cause pain for investors watching big chunks of their bull-market winnings vanish in just a few days or hours, many market watchers say a bout of panic-selling would wipe out the "frothy" margin-buying speculation that propelled the latter part of the tech market's meteoric rise earlier this year.
"You're getting that speculative dynamic out of the real market," said George Gilbert, a fund manager at the Northern Technology Fund in Chicago. "It's probably in the long run healthy for the economy and for the [stock] market, although it doesn't feel like it when it's happening."
Hickey expects the Nasdaq to continue falling until "we wipe out all the excesses, ... until we put some fear into the market."
Other market players, however, don't believe much more downside exists for tech stocks. Bill Meehan, chief market analyst at Cantor Fitzgerald, thinks the Nasdaq index has either bottomed out already, or is very close to doing so. Meehan, in fact, is telling clients to reenter the market, saying that the Nasdaq's 30% drop from its high indicates that excessive value has been stripped away. He and others, however, are telling clients to stick with the safest area within technology right now: large-cap technology stocks that show stable growth.
(Compiled from Dow Jones Newswires and other sources)
Copyright (c) 2000 Dow Jones & Company, Inc.
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