>By SUSAN PULLIAM
Staff Reporter of THE WALL STREET JOURNAL
Take a deep breath: Investors are blowing air back into the Nasdaq market.
Biotechnology stocks are surging, up more than 70% on average for the past month, while some of the old favorites among day traders are enjoying heady gains not seen since before the market's spring swoon. Akamai Technologies, for example, has soared 94% since May 26, gaining $21.375 Wednesday alone, to $115.375 in 4 p.m. Nasdaq Stock Market trading.
Even a few really speculative stocks have skyrocketed. Shares of MicroStrategy, whose shares had plunged amid major accounting issues, recently tripled within days after a mere whiff of a rumored financing. The stock since has given back some of its gains, falling $1.75 to $39.25 Wednesday, and still is well below the about $62 of several weeks ago.
What does it all mean? Signs are growing that, amid the Nasdaq's return to 4000 this week, some of the speculation that had been driven out of the market during the decline of April and May is creeping back into a few corners of the market. Don't misunderstand. It is definitely different this time. The big moves are occurring among stocks in relatively isolated pockets of the Nasdaq; unlike this year, when the entire Nasdaq was on fire. Also, the gains are neither as big, nor as protracted, as they were during the height of the Nasdaq's go-go days.
But, the psychology that led the market to its dizzying peak in March is alive and kicking, say some well-heeled investors and analysts. "The mania is definitely back," says Arnold Snider, who runs Deerfield Capital, a biotechnology and health-care hedge fund in New York.
Mr. Snider has been selling into the recent surge in biotechnology stocks, convinced that the speculative fervor will die out after a rough draft of a government-directed project on human-gene sequencing is released this week or next. "People are looking for a lottery ticket rather than an investment," he says. "The biotech area is overpriced with a lot of fluff in it."
Fair enough. But what do the pockets of irrational exuberance suggest about the health of the broader market? "There is fear among everyone that if it does come back, we'll have a narrow advance, which is an unhealthy thing for the market. You can't sustain a bull market on the back of momentum stocks," says Keith Mullins, a small-stock strategist at New York securities firm Salomon Smith Barney.
"I don't consider what's happened so far unhealthy," he says, but if the rally lasts much longer, "You have to question whether you are setting up for another decline."
In some ways, it shouldn't be all that surprising that some of the froth has resurfaced. "But most people think we won't have the same level of euphoria that we did three months ago," says Merrill Lynch Internet analyst Henry Blodget. "Even if the long-term trend is cooling, we may still have resurgences of the frenzy. And that's what we're seeing here."
The idea that investors are being drawn back to some of the stocks that had gigantic gains last year doesn't stun Mr. Mullins. "You had enormous amounts of profits made in 1999 and the first part of this year," he says. "And it's hard to kill that memory. You have investors that don't want to miss the next move, because they are too trained to anticipate strong returns."
This time around, the stars of the show are slightly different. Biotechnology stocks are taking center stage, even as many dot-com stocks are no longer the main event. Internet stocks as a group have risen only about 30% since the end of May, compared with the about 70% rise in the index for biotechnology stocks.
Many of the former dot-com darlings are looking a little dowdy lately, such as DoubleClick, which hasn't mustered much of a bounce. Amazon.com and E*Trade also are floating around near their lows.
Put another way, a broad group of Internet companies brought public last year and tracked by Steven Galbraith, an analyst at Sanford C. Bernstein, as a proxy for speculative excess in the market is still down 51% from its high in March. By comparison, the Nasdaq is off only about 18% from its high in March.
"We are having more isolated incidents of a go-go attitude," Mr. Galbraith says. "It means to me it's petering out."
Try telling that to Mark Whistler. The 26-year-old investor, who trades through Cornerstone Securities in Denver, has concentrated 80% of his intraday trades lately on biotechnology issues. "They've built up excellent momentum," says Mr. Whistler, who predicts Celera, one of his favorites will hit $150 by Monday. (Celera fell $1.50 to $136.75 in 4 p.m. New York Stock Exchange composite trading Wednesday.)
Isn't he nervous about the kind of gut-wrenching decline that hit the group in March repeating itself? "Absolutely," he says. "But for the most part I think we are safe until next year."
It isn't just the biotechnology stocks that have lured retail investors back into the market. In addition to the run by MicroStrategy, Rambus, a perennial favorite of short-sellers -- those investors who bet that a stock will decline -- has soared, trading at $92.625 Wednesday, down $2.1875, but up from around $36 at the end of May, on news of a pact with Toshiba.
Superconductor Technologies, a maker of superconducting products for wireless technologies, also has raced up recently, rising to a high of $42 two weeks ago from $14 at the end of April after the company announced that it has a 79% share of superconducting product sales to wireless phone-service providers.
Superconductor Technologies issued valuable warrants on its shares to one big purchaser of its equipment; the stock also is a favorite target of short sellers. (The company says that the company that received the warrants represented slightly more than half of its revenue in the first quarter.) The stock rose $1.375 to $35.625 on the Nasdaq Wednesday.
That's not all. Alternative fuel stocks, once a favorite group among hyperactive day traders, enjoyed a run again Wednesday, with Plug Power, a maker of fuel cells, up nearly 14% this week, though it fell $4.50 to $58 Wednesday. Even the alternative operating system stocks, also a staple in day traders' diets last year, sprang to life this week. Red Hat traded Wednesday at $31.875, up $1.6875 on the Nasdaq.
Biotechnology stocks hold the highest chance of 1999-like excess, says Larry Feinberg, who is a believer in the potential for genomics companies and head of the health care and biotechnology hedge fund Oracle Partners.
"Things got a little silly in January and February," Mr. Feinberg says. "We started seeing concept companies getting huge valuations," he says, adding: "I think we are going to see that again." |
