"New Techs" gained on Friday. The meaning of Intel's preannouncement:
Techs stumble, but not for long
By Lisa Meyer
Redherring.com, September 25, 2000
The fact that Intel (Nasdaq: INTC) knocked down other stocks Friday revealed not only the importance of the tech bellwether, but also the current dark state of investor psychology during the volatile transition to a new economy.
The semiconductor maker announced Thursday that third-quarter sales and gross margins would be lower than expected. Such news caused the Nasdaq to sink more than 200 points in early trading Friday, although the index bounced back and wound up declining just 25 points for the day. But some market experts think investors still have reason to be spooked.
Intel, a pillar of the three major market barometers -- the Dow, S & P 500, and Nasdaq -- is also a heavy component in many portfolios. Almost every PC includes an Intel product. "If Intel has a problem, that says something about the general demand out there," says Arnie Berman, technology strategist at Wit Soundview. "There's nothing good about the Intel announcement, but the state of investor psychology has been more negative than it should be."
But how can you blame traders? Too many reality checks have made them skittish. The Nasdaq plunged 37 percent this spring, from its 5,049 peak March 10 to 3,165 on May 23, and since then a number of Net companies have filed for bankruptcy. The failure of some Internet companies to generate profits has only been compounded by the recent bite into company profits caused by weakness in the euro and the spike in crude oil prices.
William Keithler, portfolio manager of the Invesco Technology Fund, says, "The psychology on tech stocks is negative and that will lead to overreactions on the downside. Given the valuations, people are scared. It is reasonable to say that the market has been over-optimistic on how fast these things can grow."
NEW TECHS ACTUALLY GAINED
Some analysts believe, however, that the Nasdaq's correction is the result of fundamental changes in the economy, not just overpriced stocks. The Nasdaq is heavily weighted with old tech companies struggling to survive in a new economy, according to Richard Dukas, director of public relations at Amerindo Investment Advisors, which manages funds that invest primarily in emerging tech companies. Once the companies have matured, Amerindo drops them from its portfolios. According to Mr. Dukas, approximately 87 percent of Amerindo's stocks are Internet or Internet-related.
"The Nasdaq is heavily weighted with yesterday's tech companies: Intel, Microsoft (Nasdaq: MSFT), Dell (Nasdaq: DELL), Apple (Nasdaq: AAPL)," Mr. Dukas says. "Because of that, the index will remain soft through the end of the year. The older tech companies are having a difficult time transitioning from a client/server to an Internet model."
Like Mr. Dukas, Invesco's Mr. Keithler believes that investors need to keep their eyes on the tech road. Because it changes quickly, incumbents have a hard time maintaining multi-generational dominance. "In 1985, IBM was on top of the world," Mr. Keithler says. "It was big, safe, and invulnerable -- then look what happened. Two years ago, Microsoft was considered in the same situation."
Indeed, big tech players may have been down Friday, but a good number of Net saplings finished up. Microsoft, Dell, and Apple all sank, while Ariba (Nasdaq: ARBA), a business-to-business software and services provider, jumped nearly 11 percent to close at $168.88, just 8.9 percent off its 52-week-high of $183.31. Ariba competitor Commerce One (Nasdaq: CMRC) gained 9.8 percent. Amazon.com (Nasdaq: AMZN) finished up 3.4 percent and Yahoo (Nasdaq: YHOO) rose 3 percent.
But Mr. Berman believes that Friday's dip is not a sign of a cataclysmic shift in the tech sector, but merely a Nasdaq slide typical of September. "Investors are just returning from summer vacations," he says. "Inevitably, there are a bunch of pre-announcements."
THE LONG TERM OUTLOOK
True, Intel's data is bad, but the future is not so disturbing for all technology companies. Most analysts agree that the fundamentals in the tech sector are not weak enough to cause a severe, prolonged plunge.
"The industry is not going away," Mr. Keithler points out. "The outlook is not unblemished. Clearly there is a risk. But demand is not disappearing. It is just moderating. We are setting the stage for an upside surprise down the road. By Election Day, we could see a nice turn on these stocks."
In fact, Mr. Berman believes that now is the time to go shopping for older tech companies such as Dell and Microsoft.
And Philip Orlando, chief investment officer at Value Line Asset Management, even suggests taking a look at Intel by the middle of next week. The stock fell $13.55, or 22 percent, since its sales warning on Thursday; Mr. Orlando says that for long-term investors, the time to be buying blue chips is when everyone is dumping them because they may be oversold.
Clearly that's what many investors seemed to think about many tech stocks Friday -- except Intel, of course -- as a major bloodbath on the order of the Nasdaq's 355-point drop last April 14 didn't materialize. |
