CNN interview last night:
ANDREW BARRETT, TECHNOLOGY STRATEGIST, SALOMON SMITH BARNEY
LOU DOBBS: So you think that this is entirely a reasonable process that we're witnessing, the Amazons, the eBays -- it's a time to jump in.
ANDREW BARRETT: Well, I think in terms of reason, it depends on how you look at it, but I think if you look at the underlying fundamentals, they are clearly there. That's the difference. That's what separates what's happening from a mania. Are the stocks themselves acting rationally? No, of course not. The valuations are coming up very, very quickly, and by any measure they are a little high. But the underlying fundamentals is what must be looked at, and that's what good.
DOBBS: Let's take an example -- you know, when I laugh at Internet stocks, I laugh because I don't have all of those stocks in my portfolio, so it's a laughter of disappointment, if you will. But the fact is, Amazon.com -- talking about the fact it won't have earnings, and it will continue to quadruple revenue -- where is the model leading us there?
BARRETT: Well, the model is leading you away from valuing these companies on a P.E. basis -- P.E. is a way of looking at it in the old way; new way you don't do that. You look at a lot of other things; you look at branding: Amazon.com has an amazing branding, Yahoo! has an amazing branding characteristic. You also value them using cash flow. Cash flow is really what the financial metric that you can use. Using those and then taking the growth rates, projecting it out into, of course, 2002, 2003...
DOBBS: We should be fair, though, to Yahoo!, because it is almost singular amongst these Internet stocks in that it does have earnings, some 15 cents a share, with a $34-billion market cap.
BARRETT: Now, does that 15 cents make sense? I mean it's...
DOBBS: Well, it sounds better than a loss to me, no mattern what the metrics are that we use to judge potential end performance. But what stocks are you most enthusiastic about in this group that a lot of investors, obviously, are very
enthusiastic about?
BARRETT: Well, there's an easy -- almost an easy way to figure out how to play this group. The group continues to run-- the stocks continue to run individually until they do miss the revenue number, or they do miss that EPS number. So what you do is you find the groups of stocks, or the names...
DOBBS: Did you say EPS number?
BARRETT: Well, the bottom-line number, because there is still some projection...
DOBBS: Now wait a minute Andrew, you said earnings were important here now.
BARRETT: There's still some projections out there, even on a loss basis, so the loss of the EPS.
DOBBS: LPS.
BARRETT: Now, what you want to do is get as far as you can. The companies that are going to go as long as they can without missing those numbers are going to be the companies that you want to own. So coming back to your questions, I think Yahoo! is a great company. I think America Online is a great company.
DoubleClick -- excellent play in here on this. These companies we don't think are going to miss any time soon; that's going to give you a continued run.
DOBBS: Let's talk about another characteristic amongst those stocks. Are there any that you would outright short -- stay away from?
BARRETT: You can't short in a momentum like this. I mean,I could tell you that there are some business models out there that look a little skeptical. There are some of these online retailers that you don't really know about, and they've taken the brick and mortar business, which is not going well for them, moved it to the Internet thinking it's going to save them;
it's not going to save them.
DOBBS: What names come to mind?
BARRETT: Names like K-Tel, everyone knows that one as a good one. Books-A-Million is a story that is...
DOBBS: Let me ask you this Andrew: One of the things -- I was referring to it earlier with Bill Tucker -- there is very little mention made, and these Internet stocks, almost singular in all of the market groups in terms of float. Their float is so narrow, so unique in its narrowness, why isn't more made of that, and do you think that's a contributor to some of these price run-ups?
BARRETT: Well, I think it's an excellent point that you bring up. That is one of the reasons why you see these stocks going up 30, 40, 50 points a day, where, as in a normal growth
environment, the stocks should be up much smaller in terms of dollar figures. A lot's not made of that because the investing community doesn't seem to really care; it's not an important
issue.
DOBBS: But as we heard from Fred Katayama, driving many of these stocks -- and I'm sure this is concerning to you, as it is to me -- small investors playing here who, perhaps, are not
sophisticated enough to pay attention to float. Do you think more should be made of it?
BARRETT: More should be made of it. I think people should recognize that if they want to exit these stocks, because these stocks go up pretty quickly, they go down just as quickly,
probably even faster, and that's maybe something that people will not be cognizant of. That's why institutions have been largely out of this move because of the float. They're nervous
about it, and that makes sense.
DOBBS: And they missed a -- quite a wild ride up.
BARRETT: Absolutely.
DOBBS: Andrew Barrett, thanks for being with us here on MONEYLINE.
BARRETT: Thank you.
cnn.com |
