From the man who wrote DOW 36,000-
James K. Glassman IHT Saturday, November 1, 2003
World of Investing
The cover of the latest Business 2.0, one of the few surviving technology-business magazines of the go-go 1990's, is an eye-catcher. "Why This Tech Bubble Is About to BLOW,” screams the headline, followed in smaller type by, “Wall Street Is Doing It Again ... Save Yourself!”
.
It's nice to see one of these normally boosterish publications advising caution. But is it true, as the magazine claims, that “tech stocks are back to dangerously inflated levels” and that “sadly, there's only one way this can end”?
.
I don't think so. Certainly, it's unwise to overload your portfolio with tech stocks or to chase companies with foolish business plans. But it's also unwise to reject tech just because prices are rising.
.
Back in mid-March, I marked the third anniversary of the peak of the Nasdaq composite index by asking the opposite question from the one posed by Business 2.0: With tech stocks having lost about three-quarters of their value, why would anyone ever want to own them again?
.
I was enthusiastic, pointing, for example, to Netflix, a Web-based video lending library. The stock, which closed at $16.55 on March 14, closed at $58.31 on Thursday. Other stocks cited include Novell, a maker of Internet-based business software, which has gone to $5.66 from $2.24; Apple Computer, to $23.09 from $14.78; and eBay, the online auctioneer, to $56.65 from $41.96.
.
At the time, I lamented that many tech mutual funds were diversifying into nontech stocks or cowering with piles of cash. I cited one fund that was worth holding: Dreyfus Premier Technology Growth. It was flat for the first three months of the year but since then has risen more than 50 percent. The fund's top holding, UTStarcom, a maker of wireless equipment that concentrates on the China market, is up 74 percent since mid-March. The next leading assets, in order, are: Dell Computer, up 38 percent; Cisco Systems, up 57 percent; Intel, up 94 percent; and Taiwan Semiconductor Manufacturing, up 66 percent. Frankly, though, it was easy to be wild about tech stocks in March, when they were so beaten up. All you had to do was believe that the economy would revive and search for sound businesses. The economy has certainly come back.
.
It is a lot harder to determine where we go from here. Byron Wien of Morgan Stanley points out in his Oct. 22 letter to clients that the best performance so far this year has come from information technology, up 39 percent. But he worries that many of these rising stocks aren't of particularly high quality, and that they have come too far too fast. The authors of the Business 2.0 article, Michael Copeland and Paul Sloan, make the same point more flamboyantly: “Crazy valuations are back,” they write. They scoff at Yahoo, the prime online portal, which carries a forward price/$ earnings ratio (based on estimated 2003 earnings) of 119, and Amazon.com, at a forward P/E of 96. “Such valuations are beyond optimistic; they're hallucinatory,” the authors write.
.
But this is not the late 1990's, when many valuations truly were hallucinatory. For instance, adjusted for a reverse split, Priceline.com, the online travel discounter, traded at a high of $990 a share in 1999, a time when it was hemorrhaging cash; that's a P/E of infinity. Today, it's $29.98, and expected earnings for 2003 (the first profitable year in the company's history) are 50 cents a share, for a P/E of 60.
.
Also, remember that while the Nasdaq has risen nearly by half since March, it's still more than 60 percent below the peak it reached three and half years ago, even though U.S. economic output has grown by more than $1 trillion.
.
Sure, stock prices could drop in the coming months. You never know what will happen in the short term. But to equate 2003 with 1999 is dead wrong.
.
On the other hand, having losers is almost certain if you own tech stocks, which are naturally volatile. The best strategy is to soften the inevitable blows through diversification and buying shares that aren't outlandishly priced.
.
The Oct. 27 issue of the newsletter Dow Theory Forecasts offers one approach: Buy mid-capitalization stocks, which tend to carry a lower median P/E than small- or large-caps. In this group, Dow Theory's top pick is SunGard Data Systems, which serves the financial industry. It is expected to increase its earnings at a rate of 18 percent annually over the next five years and trades at a current P/E of 23.
.
The Al Frank Fund, which is up 46 percent this year has among its top holdings ValueClick,a tech-based marketing concern; Diodes, semiconductors, at a P/E of 24; and Nam Tai Electronics, a mid-cap Hong Kong-based electronics manufacturer, at a P/E of 40.
.
Value Line, known for its circumspection, includes two tech stocks in its 20-stock model portfolio for near-term growth: EarthLink, an Internet service provider whose share price has been depressed by bad news, and Cognizant Technology Solutions, which offers customized information technology systems for large corporations.
.
Another fruitful area for finding well-priced tech stocks is abroad. The tiny Matthews Asian Technology Fund has been one of the year's best performers, up 51 percent. Its top holdings include SK Telecom, the thriving South Korean wireless company, at a forward P/E of just 10; and a slew of Japanese techs, including Nintendo, at a P/E of 12.
.
Another Asian choice is Sina, a global online media company aimed at Chinese users. Sina shares, which trade in Shanghai, have quintupled this year, and, at a current P/E of 67, they are hardly cheap. But the company is growing at a phenomenal pace in a market that's probably the best tech audience in the world. Among European tech stocks, SAP is a giant in business software. This stock, too, appears expensive at a P/E of 35, but the franchise is solid, and its prospects are bright as the economy recovers worldwide.
.
As for tech mutual funds, the pickings remain slim. Dreyfus Premier Technology Growth is still the top choice, with average risk, a tiny amount of cash, relatively low turnover and, in Mark Herskovitz, a manager who has been at the helm since inception six years ago. The fund has returned an annual average of 9 percent for the past five years. It's far from perfect - with a load of 5.75 percent and annual expenses running 1.6 percent - but, from what I can tell, it may be the best of a mediocre bunch.
.
Finally, take a close look at a more general fund: Legg Mason Value, whose manager, William Miller, has beaten the benchmark S&P 500 index for the past 12 years. This isn't a tech fund, but the top holding is Amazon, at 9 percent of the portfolio, followed by Nextel Communications at 7 percent.
.
Among the stocks mentioned in this article, James K. Glassman owns Netflix, Dell and Amazon. His e-mail address is jglassman@aei.org.
< < Back to Start of Article World of Investing
The cover of the latest Business 2.0, one of the few surviving technology-business magazines of the go-go 1990's, is an eye-catcher. "Why This Tech Bubble Is About to BLOW,” screams the headline, followed in smaller type by, “Wall Street Is Doing It Again ... Save Yourself!”
.
It's nice to see one of these normally boosterish publications advising caution. But is it true, as the magazine claims, that “tech stocks are back to dangerously inflated levels” and that “sadly, there's only one way this can end”?
.
I don't think so. Certainly, it's unwise to overload your portfolio with tech stocks or to chase companies with foolish business plans. But it's also unwise to reject tech just because prices are rising.
.
Back in mid-March, I marked the third anniversary of the peak of the Nasdaq composite index by asking the opposite question from the one posed by Business 2.0: With tech stocks having lost about three-quarters of their value, why would anyone ever want to own them again?
.
I was enthusiastic, pointing, for example, to Netflix, a Web-based video lending library. The stock, which closed at $16.55 on March 14, closed at $58.31 on Thursday. Other stocks cited include Novell, a maker of Internet-based business software, which has gone to $5.66 from $2.24; Apple Computer, to $23.09 from $14.78; and eBay, the online auctioneer, to $56.65 from $41.96.
.
At the time, I lamented that many tech mutual funds were diversifying into nontech stocks or cowering with piles of cash. I cited one fund that was worth holding: Dreyfus Premier Technology Growth. It was flat for the first three months of the year but since then has risen more than 50 percent. The fund's top holding, UTStarcom, a maker of wireless equipment that concentrates on the China market, is up 74 percent since mid-March. The next leading assets, in order, are: Dell Computer, up 38 percent; Cisco Systems, up 57 percent; Intel, up 94 percent; and Taiwan Semiconductor Manufacturing, up 66 percent. Frankly, though, it was easy to be wild about tech stocks in March, when they were so beaten up. All you had to do was believe that the economy would revive and search for sound businesses. The economy has certainly come back.
.
It is a lot harder to determine where we go from here. Byron Wien of Morgan Stanley points out in his Oct. 22 letter to clients that the best performance so far this year has come from information technology, up 39 percent. But he worries that many of these rising stocks aren't of particularly high quality, and that they have come too far too fast. The authors of the Business 2.0 article, Michael Copeland and Paul Sloan, make the same point more flamboyantly: “Crazy valuations are back,” they write. They scoff at Yahoo, the prime online portal, which carries a forward price/$ earnings ratio (based on estimated 2003 earnings) of 119, and Amazon.com, at a forward P/E of 96. “Such valuations are beyond optimistic; they're hallucinatory,” the authors write.
.
But this is not the late 1990's, when many valuations truly were hallucinatory. For instance, adjusted for a reverse split, Priceline.com, the online travel discounter, traded at a high of $990 a share in 1999, a time when it was hemorrhaging cash; that's a P/E of infinity. Today, it's $29.98, and expected earnings for 2003 (the first profitable year in the company's history) are 50 cents a share, for a P/E of 60.
.
Also, remember that while the Nasdaq has risen nearly by half since March, it's still more than 60 percent below the peak it reached three and half years ago, even though U.S. economic output has grown by more than $1 trillion.
.
Sure, stock prices could drop in the coming months. You never know what will happen in the short term. But to equate 2003 with 1999 is dead wrong.
.
On the other hand, having losers is almost certain if you own tech stocks, which are naturally volatile. The best strategy is to soften the inevitable blows through diversification and buying shares that aren't outlandishly priced.
.
The Oct. 27 issue of the newsletter Dow Theory Forecasts offers one approach: Buy mid-capitalization stocks, which tend to carry a lower median P/E than small- or large-caps. In this group, Dow Theory's top pick is SunGard Data Systems, which serves the financial industry. It is expected to increase its earnings at a rate of 18 percent annually over the next five years and trades at a current P/E of 23.
.
The Al Frank Fund, which is up 46 percent this year has among its top holdings ValueClick,a tech-based marketing concern; Diodes, semiconductors, at a P/E of 24; and Nam Tai Electronics, a mid-cap Hong Kong-based electronics manufacturer, at a P/E of 40.
.
Value Line, known for its circumspection, includes two tech stocks in its 20-stock model portfolio for near-term growth: EarthLink, an Internet service provider whose share price has been depressed by bad news, and Cognizant Technology Solutions, which offers customized information technology systems for large corporations.
.
Another fruitful area for finding well-priced tech stocks is abroad. The tiny Matthews Asian Technology Fund has been one of the year's best performers, up 51 percent. Its top holdings include SK Telecom, the thriving South Korean wireless company, at a forward P/E of just 10; and a slew of Japanese techs, including Nintendo, at a P/E of 12.
.
Another Asian choice is Sina, a global online media company aimed at Chinese users. Sina shares, which trade in Shanghai, have quintupled this year, and, at a current P/E of 67, they are hardly cheap. But the company is growing at a phenomenal pace in a market that's probably the best tech audience in the world. Among European tech stocks, SAP is a giant in business software. This stock, too, appears expensive at a P/E of 35, but the franchise is solid, and its prospects are bright as the economy recovers worldwide.
.
As for tech mutual funds, the pickings remain slim. Dreyfus Premier Technology Growth is still the top choice, with average risk, a tiny amount of cash, relatively low turnover and, in Mark Herskovitz, a manager who has been at the helm since inception six years ago. The fund has returned an annual average of 9 percent for the past five years. It's far from perfect - with a load of 5.75 percent and annual expenses running 1.6 percent - but, from what I can tell, it may be the best of a mediocre bunch.
.
Finally, take a close look at a more general fund: Legg Mason Value, whose manager, William Miller, has beaten the benchmark S&P 500 index for the past 12 years. This isn't a tech fund, but the top holding is Amazon, at 9 percent of the portfolio, followed by Nextel Communications at 7 percent.
.
Among the stocks mentioned in this article, James K. Glassman owns Netflix, Dell and Amazon. His e-mail address is jglassman@aei.org. World of Investing
The cover of the latest Business 2.0, one of the few surviving technology-business magazines of the go-go 1990's, is an eye-catcher. "Why This Tech Bubble Is About to BLOW,” screams the headline, followed in smaller type by, “Wall Street Is Doing It Again ... Save Yourself!”
.
It's nice to see one of these normally boosterish publications advising caution. But is it true, as the magazine claims, that “tech stocks are back to dangerously inflated levels” and that “sadly, there's only one way this can end”?
.
I don't think so. Certainly, it's unwise to overload your portfolio with tech stocks or to chase companies with foolish business plans. But it's also unwise to reject tech just because prices are rising.
.
Back in mid-March, I marked the third anniversary of the peak of the Nasdaq composite index by asking the opposite question from the one posed by Business 2.0: With tech stocks having lost about three-quarters of their value, why would anyone ever want to own them again?
.
I was enthusiastic, pointing, for example, to Netflix, a Web-based video lending library. The stock, which closed at $16.55 on March 14, closed at $58.31 on Thursday. Other stocks cited include Novell, a maker of Internet-based business software, which has gone to $5.66 from $2.24; Apple Computer, to $23.09 from $14.78; and eBay, the online auctioneer, to $56.65 from $41.96.
.
At the time, I lamented that many tech mutual funds were diversifying into nontech stocks or cowering with piles of cash. I cited one fund that was worth holding: Dreyfus Premier Technology Growth. It was flat for the first three months of the year but since then has risen more than 50 percent. The fund's top holding, UTStarcom, a maker of wireless equipment that concentrates on the China market, is up 74 percent since mid-March. The next leading assets, in order, are: Dell Computer, up 38 percent; Cisco Systems, up 57 percent; Intel, up 94 percent; and Taiwan Semiconductor Manufacturing, up 66 percent. Frankly, though, it was easy to be wild about tech stocks in March, when they were so beaten up. All you had to do was believe that the economy would revive and search for sound businesses. The economy has certainly come back.
.
It is a lot harder to determine where we go from here. Byron Wien of Morgan Stanley points out in his Oct. 22 letter to clients that the best performance so far this year has come from information technology, up 39 percent. But he worries that many of these rising stocks aren't of particularly high quality, and that they have come too far too fast. The authors of the Business 2.0 article, Michael Copeland and Paul Sloan, make the same point more flamboyantly: “Crazy valuations are back,” they write. They scoff at Yahoo, the prime online portal, which carries a forward price/$ earnings ratio (based on estimated 2003 earnings) of 119, and Amazon.com, at a forward P/E of 96. “Such valuations are beyond optimistic; they're hallucinatory,” the authors write.
.
But this is not the late 1990's, when many valuations truly were hallucinatory. For instance, adjusted for a reverse split, Priceline.com, the online travel discounter, traded at a high of $990 a share in 1999, a time when it was hemorrhaging cash; that's a P/E of infinity. Today, it's $29.98, and expected earnings for 2003 (the first profitable year in the company's history) are 50 cents a share, for a P/E of 60.
.
Also, remember that while the Nasdaq has risen nearly by half since March, it's still more than 60 percent below the peak it reached three and half years ago, even though U.S. economic output has grown by more than $1 trillion.
.
Sure, stock prices could drop in the coming months. You never know what will happen in the short term. But to equate 2003 with 1999 is dead wrong.
.
On the other hand, having losers is almost certain if you own tech stocks, which are naturally volatile. The best strategy is to soften the inevitable blows through diversification and buying shares that aren't outlandishly priced.
.
The Oct. 27 issue of the newsletter Dow Theory Forecasts offers one approach: Buy mid-capitalization stocks, which tend to carry a lower median P/E than small- or large-caps. In this group, Dow Theory's top pick is SunGard Data Systems, which serves the financial industry. It is expected to increase its earnings at a rate of 18 percent annually over the next five years and trades at a current P/E of 23.
.
The Al Frank Fund, which is up 46 percent this year has among its top holdings ValueClick,a tech-based marketing concern; Diodes, semiconductors, at a P/E of 24; and Nam Tai Electronics, a mid-cap Hong Kong-based electronics manufacturer, at a P/E of 40.
.
Value Line, known for its circumspection, includes two tech stocks in its 20-stock model portfolio for near-term growth: EarthLink, an Internet service provider whose share price has been depressed by bad news, and Cognizant Technology Solutions, which offers customized information technology systems for large corporations.
.
Another fruitful area for finding well-priced tech stocks is abroad. The tiny Matthews Asian Technology Fund has been one of the year's best performers, up 51 percent. Its top holdings include SK Telecom, the thriving South Korean wireless company, at a forward P/E of just 10; and a slew of Japanese techs, including Nintendo, at a P/E of 12.
.
Another Asian choice is Sina, a global online media company aimed at Chinese users. Sina shares, which trade in Shanghai, have quintupled this year, and, at a current P/E of 67, they are hardly cheap. But the company is growing at a phenomenal pace in a market that's probably the best tech audience in the world. Among European tech stocks, SAP is a giant in business software. This stock, too, appears expensive at a P/E of 35, but the franchise is solid, and its prospects are bright as the economy recovers worldwide.
.
As for tech mutual funds, the pickings remain slim. Dreyfus Premier Technology Growth is still the top choice, with average risk, a tiny amount of cash, relatively low turnover and, in Mark Herskovitz, a manager who has been at the helm since inception six years ago. The fund has returned an annual average of 9 percent for the past five years. It's far from perfect - with a load of 5.75 percent and annual expenses running 1.6 percent - but, from what I can tell, it may be the best of a mediocre bunch.
.
Finally, take a close look at a more general fund: Legg Mason Value, whose manager, William Miller, has beaten the benchmark S&P 500 index for the past 12 years. This isn't a tech fund, but the top holding is Amazon, at 9 percent of the portfolio, followed by Nextel Communications at 7 percent.
.
Among the stocks mentioned in this article, James K. Glassman owns Netflix, Dell and Amazon. His e-mail address is jglassman@aei.org. World of Investing
The cover of the latest Business 2.0, one of the few surviving technology-business magazines of the go-go 1990's, is an eye-catcher. "Why This Tech Bubble Is About to BLOW,” screams the headline, followed in smaller type by, “Wall Street Is Doing It Again ... Save Yourself!”
.
It's nice to see one of these normally boosterish publications advising caution. But is it true, as the magazine claims, that “tech stocks are back to dangerously inflated levels” and that “sadly, there's only one way this can end”?
.
I don't think so. Certainly, it's unwise to overload your portfolio with tech stocks or to chase companies with foolish business plans. But it's also unwise to reject tech just because prices are rising.
.
Back in mid-March, I marked the third anniversary of the peak of the Nasdaq composite index by asking the opposite question from the one posed by Business 2.0: With tech stocks having lost about three-quarters of their value, why would anyone ever want to own them again?
.
I was enthusiastic, pointing, for example, to Netflix, a Web-based video lending library. The stock, which closed at $16.55 on March 14, closed at $58.31 on Thursday. Other stocks cited include Novell, a maker of Internet-based business software, which has gone to $5.66 from $2.24; Apple Computer, to $23.09 from $14.78; and eBay, the online auctioneer, to $56.65 from $41.96.
.
At the time, I lamented that many tech mutual funds were diversifying into nontech stocks or cowering with piles of cash. I cited one fund that was worth holding: Dreyfus Premier Technology Growth. It was flat for the first three months of the year but since then has risen more than 50 percent. The fund's top holding, UTStarcom, a maker of wireless equipment that concentrates on the China market, is up 74 percent since mid-March. The next leading assets, in order, are: Dell Computer, up 38 percent; Cisco Systems, up 57 percent; Intel, up 94 percent; and Taiwan Semiconductor Manufacturing, up 66 percent. Frankly, though, it was easy to be wild about tech stocks in March, when they were so beaten up. All you had to do was believe that the economy would revive and search for sound businesses. The economy has certainly come back.
.
It is a lot harder to determine where we go from here. Byron Wien of Morgan Stanley points out in his Oct. 22 letter to clients that the best performance so far this year has come from information technology, up 39 percent. But he worries that many of these rising stocks aren't of particularly high quality, and that they have come too far too fast. The authors of the Business 2.0 article, Michael Copeland and Paul Sloan, make the same point more flamboyantly: “Crazy valuations are back,” they write. They scoff at Yahoo, the prime online portal, which carries a forward price/$ earnings ratio (based on estimated 2003 earnings) of 119, and Amazon.com, at a forward P/E of 96. “Such valuations are beyond optimistic; they're hallucinatory,” the authors write.
.
But this is not the late 1990's, when many valuations truly were hallucinatory. For instance, adjusted for a reverse split, Priceline.com, the online travel discounter, traded at a high of $990 a share in 1999, a time when it was hemorrhaging cash; that's a P/E of infinity. Today, it's $29.98, and expected earnings for 2003 (the first profitable year in the company's history) are 50 cents a share, for a P/E of 60.
.
Also, remember that while the Nasdaq has risen nearly by half since March, it's still more than 60 percent below the peak it reached three and half years ago, even though U.S. economic output has grown by more than $1 trillion.
.
Sure, stock prices could drop in the coming months. You never know what will happen in the short term. But to equate 2003 with 1999 is dead wrong.
.
On the other hand, having losers is almost certain if you own tech stocks, which are naturally volatile. The best strategy is to soften the inevitable blows through diversification and buying shares that aren't outlandishly priced.
.
The Oct. 27 issue of the newsletter Dow Theory Forecasts offers one approach: Buy mid-capitalization stocks, which tend to carry a lower median P/E than small- or large-caps. In this group, Dow Theory's top pick is SunGard Data Systems, which serves the financial industry. It is expected to increase its earnings at a rate of 18 percent annually over the next five years and trades at a current P/E of 23.
.
The Al Frank Fund, which is up 46 percent this year has among its top holdings ValueClick,a tech-based marketing concern; Diodes, semiconductors, at a P/E of 24; and Nam Tai Electronics, a mid-cap Hong Kong-based electronics manufacturer, at a P/E of 40.
.
Value Line, known for its circumspection, includes two tech stocks in its 20-stock model portfolio for near-term growth: EarthLink, an Internet service provider whose share price has been depressed by bad news, and Cognizant Technology Solutions, which offers customized information technology systems for large corporations.
.
Another fruitful area for finding well-priced tech stocks is abroad. The tiny Matthews Asian Technology Fund has been one of the year's best performers, up 51 percent. Its top holdings include SK Telecom, the thriving South Korean wireless company, at a forward P/E of just 10; and a slew of Japanese techs, including Nintendo, at a P/E of 12.
.
Another Asian choice is Sina, a global online media company aimed at Chinese users. Sina shares, which trade in Shanghai, have quintupled this year, and, at a current P/E of 67, they are hardly cheap. But the company is growing at a phenomenal pace in a market that's probably the best tech audience in the world. Among European tech stocks, SAP is a giant in business software. This stock, too, appears expensive at a P/E of 35, but the franchise is solid, and its prospects are bright as the economy recovers worldwide.
.
As for tech mutual funds, the pickings remain slim. Dreyfus Premier Technology Growth is still the top choice, with average risk, a tiny amount of cash, relatively low turnover and, in Mark Herskovitz, a manager who has been at the helm since inception six years ago. The fund has returned an annual average of 9 percent for the past five years. It's far from perfect - with a load of 5.75 percent and annual expenses running 1.6 percent - but, from what I can tell, it may be the best of a mediocre bunch.
.
Finally, take a close look at a more general fund: Legg Mason Value, whose manager, William Miller, has beaten the benchmark S&P 500 index for the past 12 years. This isn't a tech fund, but the top holding is Amazon, at 9 percent of the portfolio, followed by Nextel Communications at 7 percent.
.
Among the stocks mentioned in this article, James K. Glassman owns Netflix, Dell and Amazon. His e-mail address is jglassman@aei.org. |
