Sig, which probably means, at least in the shorter term, it might be wise to take short term trading profits since 9/11... NAS has come a long way.
Regards,
John
Value Techs
By Rhonda Brammer
September 11 changed everything and probably forever. It changed the world: the way we look at the world and the way the world looks at us. It changed, in some degree or another, how we work and how we play. And, inevitably, it changed how we invest. Let us take, for example, the stock market's performance pre- and post-September 11. Before that fateful day, as the shadow of recession lengthened over the economy, the market was rather a forbidding place. But some parts of it, as always, were less hostile than others.
More specifically, our own special investment province, small stocks, turned in a doughtier showing than their bigger and celebrated brethren. The Russell 2000, a decent proxy for smaller stocks, had declined 9% through September 10 -- roughly half the 17% drop of the S&P 500. Even more noteworthy, however, was how much small value stocks were outperforming small growth stocks. Thus, from the beginning of the year through September 10, while the Russell 2000 Growth Index fell 21%, the Russell 2000 Value Index was actually in positive territory -- up 3%.
But once the market bottomed on September 21, things changed, and dramatically. Big stocks and small stocks moved up pretty much in tandem -- the S&P by 18% and the Russell 2000 by 22%, respectively. Growth, however, forged ahead of value. From September 21 through Thursday, the Russell 2000 Value Index advanced 18%, while the Russell 2000 Growth Index was up a dandy 27%.
On closer inspection, it emerges that what has been really gunning the market for the past couple of months are big tech stocks. Since September 21, as the accompanying chart vividly illustrates, the tech-loaded Nasdaq 100 has soared a blazing 43%, more than twice the none-too-shabby 19% rise in the broad market, best measured by the Wilshire 5000.
As to what lit the fire under techs, we sought authoritative insight from a fellow who's no stranger to the market as a whole and the sector in particular.
"A lot of it is outright speculation," says Scott Black, Barron's Roundtable member and proprietor of Boston-based Delphi Management. "It's the same hot list you had 18 months ago -- all the old favorites -- PMC Sierra, up 150%; JDS Uniphase, up 140%; Ciena, up 130%." While their stocks have recently taken wing, the first two companies are losing a slug of money and the profitable one, Ciena, is going for a mind-boggling 160 times trailing earnings.
Which explains why, although a long-time tech investor, he's busily reducing his portfolio's exposure to technology. No reflection on the quality of the companies, he insists. Pure and simple, he's lightening up because the stocks are ahead of themselves.
MKS Instruments, bought in the mid-teens, he has been selling in the mid-20s ("it's close to five times book and losing money"). Gone, too, is most of Lam Research, picked up around 16 in October 2000 and sold at an average price of about 28 before September 11 ("earnings are rolling over" and there's increased "competition from Applied Materials"). LTX, purchased around 10-11 over a year ago, was entirely cleaned out long before September 11 at around 26 ("three or four times book and absolutely no earnings").
When pressed, however, Scott allowed as he is buying a couple of small tech stocks whose stock prices are off 75%-80% from their highs. Both companies are losing money but boast robust finances and, in the next 12 months, he expects the stocks to double. |
