Don't bet on Nasdaq rebound any time soon
By Nick Olivari
<<NEW YORK, March 7 (Reuters) - Forget one-day rallies in the beaten-down Nasdaq stock market.
The tech-heavy Nasdaq Composite Index will not reach the dizzying heights of March last year, when it peaked above 5,000, any time soon, money managers say. It could even be years before the index recoups its 56 percent loss since then.
"There is a concern we won't get the big rebound," said Donald Berdine, chief investment officer at Pittsburgh-based PNC Advisors, which oversees $43 billion in assets. "We may not see 3500 for years."
That's because many of the reasons driving the growth in sales and profits for telecommunications and Internet equipment companies during the late 1990s no longer exist. The telecom and Web infrastructure build-up was too much, too soon.
The robust economic growth that investors assumed would go on forever is close to stalling despite two interest rate cuts by the Federal Reserve in January. The government's revised estimate for U.S. growth in the fourth quarter of 1.1 percent, was the weakest in more than five years.
And the dot-com explosion, which stoked demand for more bandwidth and the equipment to build it, has collapsed as firms that were supposed to change the way companies and individuals do business failed to make money. Without demand for products to stoke sales and profit growth, investors have little incentive to buy technology stocks.
"I'm not so sure the excess in technology capacity suggests these (stocks) have to bounce back," said Berdine, who owns tech bellwethers like Cisco Systems Inc. (NASDAQ:CSCO), Microsoft Corp. (NASDAQ:MSFT), JDS Uniphase (NASDAQ:JDSU) and EMC Corp. (NYSE:EMC)
INVENTORIES BALLOON
Several of the technology companies that led the bull market of recent years have reported troubling gains in their inventories, investors said. That, on top of expected U.S. economic growth of just 2.3 percent for 2001 according to the mean estimate of economists polled by Reuters in January, is a sign that a sustained rebound in tech stocks is not even close.
"We're not in a deep recession but this is the group that was thought to be the most invulnerable to an economic hiccup," said Donald Coxe, chairman and chief strategist at Harris Investment Management Inc., which oversees $16.5 billion in assets.
Cisco Systems, the No. 1 supplier of high speed router hardware for directing Internet traffic, saw its inventory jump by 87 percent for the 12 months ended July 29, 2000, according to Reuters data, while revenue rose just 56 percent.
Intel, the No. 1 chipmaker, reported inventories jumped 51 percent in the 12 months ended Dec. 30, though revenue climbed a mere 15 percent. Motorola Inc (NYSE:MOT), the world's No. 2 mobile phone maker, reported inventories rose 53 percent in the year ended Dec. 31, compared with a rise in revenue of 22 percent in the same period.
Investors also worry about the risk of obsolescence as technologies change and as the development of new products outpaces demand.
"What's on the shelves on Motorola that has not been sold," said PNC's Berdine. "What will it be worth even if demand catches up with capacity."
Investors now are questioning how the inventories of used equipment after the dot-com collapse will impact the sales of technology companies. Bid4Assets Inc., an auction house, said in February used dot-com equipment sales grew from zero to about a quarter of its business since October.
And while other companies, such as Wal-Mart Stores Inc. (NYSE:WMT) will increase their Web exposure, their demand for Internet equipment will not match the demand of dot-coms, investors said.
SOME OPTIMISM LEFT
There are some bright spots.
TeleGeography, a Washington, D.C.-based research firm, said the amount of fiber optic cable on the ocean floor will have risen more than 40-fold in the three years ending 2002 -- enough for 250 million simultaneous phone calls -- but even a small drop in price should increase usage .
A 50 percent drop in the price of bandwidth has prompted some Internet Service Providers to buy 100 percent or more of additional capacity, TeleGeography said in a research note.
Things may not be as bad as they seem, said Jean Keller, president of Lombard Odier Inc., the U.S. unit of the Lombard Odier group, which has $73 billion in assets, including Nortel Networks (NYSE:NT).
The United States remains near full-employment, income growth is supporting consumer spending and real estate is holding it's value, leaving U.S. household wealth mostly intact, he noted.
"Though we would not go all out," Keller said. "We think it's time to buy tech.">> |
