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Technology Stocks : Applied Materials No-Politics Thread (AMAT) -- Ignore unavailable to you. Want to Upgrade?

To: robert b furman who wrote (11676)	10/9/2004 10:42:04 PM
From: Ian@SI	Read Replies (2) \| Respond to of 25522

Interesting Barron's piece... online.barrons.com THE CONTROVERSY OVER whether tech stocks represent an opportunity right now has been well argued, in these and other pages. But the debate goes on, and here's another argument to add to the list of reasons they're a buy: a so-called contrarian quantitative indicator that shows the sector to be positioned for outsized returns for the next six to 12 months. According to recent research by Joseph Kalinowski, senior market strategist at Grace Financial Group, a Southampton, N.Y., broker/dealer and research firm for hedge funds, "we are starting to take a serious look at the tech sector and believe there will be a major buying opportunity as we enter the new year." The reason? A "Z score" that looks at current P/E multiples, average P/Es over 10 years and volatility, which allows him to compare one sector to another and puts them all on a level playing field. The Z score is currently showing that tech stocks in the S&P 500 are moving into something called the blue buy zone. When tech stocks move into that zone, "the average six-month return is 10.4%...and the average 12-month return is 31.4%." Conversely, S&P industrials have entered the red sell zone, in which the sector has historically underperformed the overall market, and has returned minus 5.9% to minus 9.3% in the following six and 12 months. Kalinowski adds that the forward earnings yield of the industrial sector, typically higher than the S&P, is now 0.7 percentage points below the S&P, signifying that the sector is "priced at a significant premium" to the S&P 500. Too, the S&P tech sector is down 6% year-to-date, while the industrials are up 7% and the index has risen 2%, another indicator that it may be time for a rotation. Kalinowski says he'd like to see " a huge washout, with more companies announcing lower third-quarter earnings" before pounding the table on tech. He notes that tech has breached the outer band of the blue zone only once in the past 10 years -- 1995 -- after which the Nasdaq went skyward until March of 2000, right before it went into the red zone.