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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: limtex who wrote (17999)	11/20/2000 1:29:42 PM
From: Boplicity	Read Replies (1) \| Respond to of 65232

Computer Shares Seen as Cheap Versus Growth Rate: Taking Stock New York, Nov. 20 (Bloomberg) -- Electronics manufacturer Sanmina Corp. sells for 35 times this year's expected profit, more than twice the price-earnings ratio of electric utility Southern Co. Still, Sanmina is now the cheaper stock relative to its expected profit growth over the next five years, said Edward Keon of Prudential Securities Inc. With the S&P Technology Index down 39 percent from its March record, many other computer-related shares also are inexpensive relative to their forecast growth, said Keon, the firm's director of quantitative research. That means investors should be buying technology stocks, he said. ``We think the time is right to buy some cheap techs,'' said Keon, specifically those on which analysts have stopped cutting their earnings estimates. Investors who compare their performance to the Standard & Poor's 500 Index should have 27 to 31 percent of their portfolio in technology shares, or 1 to 5 percentage points more than the S&P Technology Index's 26 percent weighting in the S&P 500, Keon said. Previously Keon had recommended that investors own less technology than the index. Computer-related stocks are now inexpensive relative to other groups in the S&P 500, he said. For example, Sanmina's price- earnings ratio is 1.15 times the company's expected five-year profit-growth rate. The so-called PEG, or PE-to-growth, ratio for the stocks in the S&P Utilities Index, which includes Southern, is 1.98, according to Keon. Steady Forecasts ``We're back at valuations that prevailed a year ago,'' said Keon. In addition, some analysts tracked by IBES Inc. have stopped lowering their 2001 earnings forecasts for many stocks in the group, Keon said, which made him confident it was time for some investors to ``dip a toe back in.'' From Nov. 7 to Nov. 14, analysts raised their forecasts for these shares by almost 1.1 percent, Keon said. ``The increase doesn't mean the forecasts will be positive from here on out, but it indicates that analysts are feeling more comfortable with their 2001 numbers,'' said Keon. Before joining Prudential Securities two and a half years ago, Keon was a senior vice president at IBES. To find the PEG ratio of different industry groups, Keon divided the average price-earnings ratio by the average five-year growth rate, as calculated by IBES. The analyst found that S&P technology stocks, including Hewlett-Packard Co. and International Business Machines Corp., sell for an average of 1.07. That's the lowest of any group in the S&P 500, according to Keon. Utilities are the most expensive group in the index with a PE that's 1.98 times their growth rate, he said. Keon's other picks included test and measurement-equipment maker Agilent Technologies Inc., which sells for 1.34 times its long-term growth rate of 21.9 percent. Not an `All Clear' Keon's advice to Prudential's clients came a week after the firm's chief strategist, Greg Smith, recommended investors cut their holdings in U.S. stocks and raise cash. Smith specifically recommended that investors sell some technology shares and put the proceeds into drug and food stocks. ``Nine out of 10 times we agree, but in this case I'm more aggressive on tech than he is,'' said Keon. ``His call is based more on a general reading of the political environment and economy.'' Keon said Prudential Securities' eight-person investment policy committee, including market analyst Ash Rajan, Smith and Keon, meets every Monday for as much as an hour to discuss strategy. ``It's always very civilized,'' said Keon. Like Smith, Keon said the market is unlikely to rise much in the near future, given the uncertainty over whether Democrat Al Gore or Republican George W. Bush will become president. Still, he said, computer-related companies' earnings will rise more over the next five years than any other group of stocks. ``We suspect the market will remain troubled by the election mess,'' said Keon. ``We are not sounding an `all clear.' But we do believe that tech valuations and earnings prospects offer attractive potential returns at these levels relative to the remaining risks.''