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Strategies & Market Trends : Galapagos Islands -- Ignore unavailable to you. Want to Upgrade?

To: Techplayer who wrote (37987)	4/28/2003 12:30:52 AM
From: Techplayer	Read Replies (2) \| Respond to of 57110

Q: You didn't mention any tech names. A: Technology is still overpriced. In the 25 years leading up to 1999, the technology capitalization weighting in the S&P 500 was usually about the same or just a little more than the technology profit weight in the S&P 500. In other words, if technology had a 10% profit weight, its market weight might be 12% of the S&P. While technology shrank from nearly 35% of the S&P to 15%, tech profits are only 7% of S&P profits. We would say technology is still expensive. If you have a quasi-monopoly like Microsoft or Intel, that's one thing. But there's a good case to be made that run-of-the mill tech companies should sell at discounts to the S&P multiple, and that is on reported earnings where options are not accounted as an expense. Even the better-quality tech companies, if they were to expense options, would see earnings fall 30%-40%, which would make the multiple even higher. Tech is still the weak link, though people still seem fascinated with it. For money managers to invest other people's money in -- and pay big premiums for -- companies that are highly cyclical and make things that could be obsolete in a year or two calls into question their role as fiduciaries. Bad as it's been, technology is still the soft underbelly of this market. online.wsj.com