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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank -- Ignore unavailable to you. Want to Upgrade?

To: Jenna who wrote (95015)	4/28/2000 1:07:00 AM
From: puborectalis	Read Replies (2) \| Respond to of 120523

Hate Surprises? Here's One You Might Like! By Brett D. Fromson Chief Markets Writer 4/27/00 9:23 PM ET In this whipsaw market that seems to relish surprising investors, the next surprise may be that stocks are not about to break down anytime soon. The day that started off on the worst possible foot with worrisome inflation news soon found its footing. Yes, the Dow was off one-half percent for the day, but the S&P 500 rose a bit. And the Nasdaq Composite -- recently the manic depressive of Wall Street -- shook off a 3.2% plunge at the opening to climb steadily and close at its high for the day, up 4%. What does it mean when investors seem ready to be good and scared again, and the market stages a nice rally? A surprising number of investors and analysts, both young and old, say that today's action may mark a turning point of sorts. It may signify the end of the pricking of the high-tech/dot-com bubble that developed between October and March. Listen to Carl Hathaway of Hathaway & Associates, an investment management firm. Hathaway has a unique perspective on the day. In the go-go days of the late 1960s and early 1970s, he was head of the stock research department for Morgan Guaranty, which was at that time the most powerful force in institutional investing. Hathaway is credited with inventing the "Nifty-Fifty" -- the shortlist of stocks that led that bull market. More recently, Hathaway and his son Brian have run money for a few large institutions and well-to-do individuals. They specialize in small-cap growth stocks and do not shy away from tech. Last year, their institutional fund gained 45% before fees and their hedge fund, using leverage to boost performance, rocketed up 235%. Three Parts Gin, One Part Vermouth and a Jigger of Common Sense "What we have done is take a lot of air out of the bubble that was created in the last six months. The bull market is, I think, still intact unless the central bank uses its wherewithal to really put the brakes on the economy through higher interest rates," Hathaway said. "The recent period of absurdly high valuations made the Nifty-Fifty period of high earnings multiples and low dividend yields look like child's play. It was the height of lunacy a few months ago when analysts were saying that Internet companies who were not losing money fast enough were underperforming. The notion was that if you weren't losing money faster than your growth rate, you were not investing in the future," Hathaway said. He compared the mania for money-losing Internet companies to drinking your first martini. "The first doesn't taste that good, but after a few more, you don't care," he said. That phase of Internet investing is obviously over, according to Richard McDermott, portfolio manager at the New York-based hedge fund Schottenfeld Associates. McDermott, who is almost young enough to be Hathaway's grandson, agrees with Hathaway's view that we may have seen the worst for a while. "I sensed some bottoming action today in broken growth stocks. We are starting to see big up days for companies like BroadVision (BVSN:Nasdaq - news - boards) and Nokia (NOK:NYSE - news - boards) and Texas Instruments (TXN:NYSE - news - boards) that have good news to announce," he said. "I also like the fact that the market didn't crack on the opening and that it closed at the high. Those are good signs." McDermott is not calling for a sweeping rally ahead. He foresees several months of backing and filling as the market waits for the Federal Reserve to raise rates further and for earnings to come in to justify today's stock prices. Michael Harkins, who fits neatly in age between Hathaway and McDermott, also sees the market getting a bit of traction after today. "I agree with Hathaway in this sense: There is so much reasonable value to be had. Look at Value Line. The median P/E for the 5,000 stocks they follow is 13.6. Well, that is not New Age anything," Harkins said. "We have taken plenty of air out of the bubble. Once you got all the dot-coms down by 50%, the worst was over. Think about it. Some of those companies are going to be worth something down the road, and even the ones that are not worth anything will take time to unwind. So whatever the damage to the market, it is done," he said. This trio of money managers base their views on admittedly anecdotal information. But Merrill Lynch chief market analyst Richard McCabe says that the more rigorous indicators he uses support the notion that the market has stabilized in some way. McCabe says that the Comp, and technology stocks in general, were oversold by the time they made their most recent low -- 3250 -- on April 14. He takes comfort from the Comp's ability to hold last Monday ("Microsoft Monday") and from the rise today. A Little Sanity Source: Baseline "I view Monday as a test and today as a retest," he said. "We could in the next few weeks get a rally, perhaps into the low 4000s by early summer." Like the others, however, McCabe is not saying that it's back to the races for the stock market. He remains concerned that investors have yet to turn as bearish as they normally do at a market bottom. The market could well roll over down the road. But for the moment, McCabe takes some heart from the market's good show this week. Send letters to the editor to letters@thestreet.com. Read our conflicts and disclosure policy. Order reprints of TSC articles. Top