Looks like Ed Kerschner (the strategist who edged out Abby Joseph Cohen) likes NT...
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SMARTMONEY.COM: Time to Back Up
the Truck?
By STACEY L. BRADFORD
NEW YORK -- In case you haven't noticed, there's a fire sale going on -
especially in technology stocks. At least that's how our pundits describe
the buying opportunity presented by the recent weakness in the Nasdaq.
We've heard this before. Every time the market has dropped since its peak
back in March, Wall Street has advised us to buy on dips. Is this time any
different?
PaineWebber's Ed Kerschner thinks so. He argues that this is the best
buying opportunity we've seen since October 1998. Goldman Sachs's
Abby Joseph Cohen says stocks are undervalued by 11%. Credit Suisse
First Boston's Thomas Galvin says they're trading 13% below his 2001
price targets. And after being pessimistic all year, even Morgan Stanley
Dean Witter's Byron Wien is starting to turn a bit bullish.
No one can dispute that the market has taken a fall. But has it hit rock
bottom yet? Or is the next negative earnings report from a chip maker or
telecom company going to send the Composite into another tailspin?
Our technical guru, Prudential Securities' Ralph Acampora, has considered
these questions. The former divinity student sees a trading range in which
the Nasdaq will bounce around between 3026 and 3535 for the next few
months. However, Acampora continues to forecast a "honeymoon rally"
that will start sometime after the presidential inauguration.
Our newest pundit, Thomas Galvin, of Credit Suisse First Boston, isn't
convinced the market has reached a firm bottom. He's telling his clients to
use some caution in the coming months. But by no means is he worried
about a long-term bear market. "We recommend taking a barbell
approach that positions defensively for the next few months but also takes
advantage of some fire-sale prices for many growth stocks," Galvin says.
While he realizes many investors remain jittery, he still believes the bull
market has room to roam.
Some of our pundits believe there's no point in trying to time the market,
since peaks and valleys are only clearly seen in hindsight. PaineWebber's
Kerschner thinks investors should stick with fundamentals and leave the
reading of the tea leaves to day traders. "It's not about calling market
bottoms," Kerschner says. "It's about identifying levels of attractive
valuations."
According to Kerschner's models, there are some great values in
technology out there. Established big-cap companies with earnings have
fallen to an average price-to-earnings multiple of 37 times this year's
earnings, he says - and that's far too low. "This multiple implies a long-term
earnings growth rate of 9% for a group of companies whose average
growth rate is 23%," he says. He's chosen 10 stocks from his highlighted
stocks list that he believes are extremely attractive: America Online (AOL),
Cisco Systems (CSCO), Hewlett-Packard (HWP), IBM (IBM), Lucent
Technologies (LU), Microsoft (MSFT), Motorola (MOT), Nextel
(NXTL), Nortel Networks (NT), Oracle (ORCL) and WorldCom
(WCOM).
While Kerschner is tinkering with his valuation models, Deutsche Bank
Alex. Brown's Ed Yardeni is conducting some fundamental analysis of
trends in the technology sector. Having just purchased a cable modem for
himself, Yardeni is convinced he's seen the future. And when people
decide they must have information quickly, they aren't going to worry
about where the Nasdaq is trading.
"Despite the stock market's turmoil, the New Economy is alive and well,"
Yardeni says. Even the best-managed companies, however, aren't likely to
succeed year after year, quarter after quarter. An investor's best option is
to search for the products and services that will be in high demand. Which
are they? Yardeni points to semiconductors, servers, data-storage
systems, fiber-optic systems and network appliances. Among industries,
Yardeni thinks contract manufacturing, B2B infrastructure integration,
wireless-communications systems and database systems will provide
stock-market leadership over the next several years.
As we mentioned earlier, even Byron Wien is starting to come around.
"We may be at a point where the market starts to claw its way back,"
Wien told SmartMoney.com while on a business trip in Singapore. He too
is recommending investors pick up some depressed tech stocks,
particularly the chip makers. He also likes the retail and financial-services
sectors.
Elaine Garzarelli, of Garzarelli Capital, agrees with Wien on the financial
sector. She points out that money-center bank stocks have declined 45%
since their peak in the second quarter of 1998. With the Fed tightenings
over and expected earnings growth of 10% next year, she says, this group
is poised to rally. Her picks include Bank of America (BAC), Chase
Manhattan (CMB) and Citigroup (C).
With so many cheap stocks out there, it's just a matter of time before our
collective portfolios swell, right? We certainly hope so. Of course, even the
bulls don't expect the roaring '90s to repeat themselves. But at this point,
we'll gladly take a steady trot upward. Ending the year with any kind of
gain would look pretty good right about now. For more information and
analysis of companies and mutual funds, visit SmartMoney.com at
smartmoney.com |
