Could the combination of the 3 easings in late '98 combined with excess money supply because of Y2K fears have contributed to this boom? And it is being extended because of return of growth of SE Asia and the on-going tech boom?
cheers,
Lee
I think this is one of the core reason....strong economic growth non-inflationary in character and HWP block buster earnings alongwith BRCD like stocks is what is taking this market higher..
<<The argument against tech stocks is solely based on valuation. Even value investors recognize the supernatural organic growth of tech. We look at the valuation issue three ways. First are the long-term sector shifts that have occurred within the S&P 500 where one or two sectors have proved to be the winning hand for at least a decade. Energy in the 1970s, consumer staples in the 1980s, financials in the first part of the 1990s and tech dramatically over the last six years. The dominance of one or two sectors tells us that broad-based diversified portfolios are not the secret to superior investment return and that a sector?s success is often based on the ambient temperature of the economic landscape. Energy was the inflation winner. However, in a world of mature firms with high fixed costs and excess capacity, global deregulation creates a struggle due to a lack of sustained pricing power. Tech has lived with deflation for two decades and therefore has learned to adapt. >> DLJ
<<. Firms need unit growth to get productivity in order to sustain margins. Tech, healthcare and parts of telecom are delivering superior unit growth. Until a major resurgence in inflation occurs which would shift funds to commodity stocks, tech will win out. Second, our work suggests that tech valuations are deserved based on comparative revenue growth rates and returns on capital employed as well as return on assets. The median NASDAQ 100 technology firm has posted trailing sales growth of 36%, 17% returns on average capital and 11% returns on total assets with a P/E of 50 times forward estimates. Meanwhile, the S&P 500 excluding technology shows only 9% median sales gain, 7% returns on capital, 5% returns on assets and a 14 P/E. In other words, you get what you pay for with a higher multiple reflecting four times faster sales gains and 2 to 3 times faster revenue growth. We are not trying to say that every tech stock is accurately priced, but the notion of broad based irrational exuberance is misguided when one looks at the market leaders. Keep in mind that analysts have generally been forced to increase tech estimates by amounts far greater than other sectors suggesting the current P/E could be artificially inflated by conservative forecasts. And third is a look at supply-demand conditions and technical analysis. Realistically, if politics did not cloud health care stocks, if Fed activity and deregulation were not a handicaps to banks, if energy prices had not already doubled, if tobacco was not mirred in litigation and if Coke, PG and Gillette were not stumbling, then some monies in tech stocks could be reallocated to these areas. Unfortunately these issues are qualitative problems which encumber growth expectations and limit valuations. Investors demand capital appreciation for their retirement savings, which allows them to push-out the duration of one?s investment horizon and search out organic growth. The supply of superior growth stocks is simply inadequate relative to broad-based demand for growth. Technical charts show the recent correction as not interruptive to the longer-term trends with the exception of the Microsoft breakdown, which we view as temporary. Bottom-line: people do not get Wal Mart prices at Tiffany?s, so why expect tech valuations at bargain basement levels either. DLJ Top Pick and buy-rated stocks in the tech/telecom area., including QRSI, NCOG, DOX, CSGS, ITWO, SEBL, AOL, AMZN, DTPI, SCNT, PSIX, DIGX, SLR, FLEX, CIEN, GLW, AAPL, CPQ, TSM, CMOS, LRCX, EMC, COGN, VRTS, NOK, ERICY, PCS, and VSTR. >> DLJ.. |
