ot - Mohan- fyi
from the NY Times - also a piece on MD (re philanthropy)is there but not reproduced here
January 31, 1999
The Bubbles Must Burst, if They're Real Bubbles
By KENNETH N. GILPIN
t is pretty easy to be excited and amazed about exciting and amazing technology stocks. It is equally easy to be scared to death of them.
Last year, the 250 stocks that make up Hambrecht & Quist's technology index rose 55.4 percent, the biggest annual gain ever.
And the gains have not stopped; for 1999 through Friday, the index, which does not include Internet stocks, was up 13.7 percent. The firm's Internet index is up 48.6 percent so far this year.
All good things, of course, come to an end. And expectations are high and rising that sooner rather than later the bubble will burst, particularly for Internet stocks.
But from his office in Half Moon Bay, Calif., Michael Murphy, editor of the California Technology Stock Letter, took some time last week to share his views on why technology stocks are likely to remain white-hot.
Q. Last summer, technology stocks stumbled badly, along with everything else. You don't think that selloff was justified, do you?
A. No, I don't. There was a real fear last summer and early fall that personal computer sales were not growing and communications and semiconductor sales were never going to pick up. It was utterly wrong. At the time, we were in the process of seeing accelerating sales, which have continued into this year.
On the communications side -- hardware, routers and switches -- there never was a slowdown.
Semiconductor pricing bottomed in May or June, and now we are hearing that there is a real imbalance of supply and demand for certain, mostly higher-valued, chips. And that has translated pretty quickly into orders for semiconductor equipment. So the business looks like it may be approaching a year of normal growth in 1999. And 2000 may be a boom year.
Q. Why is that?
A. There are three legs to technology: communications, computing and biotech. All three are having very strong positive product cycles. It is those product cycles that drive the business, not the economy.
At the semiconductor industry's forecasting meeting in Monterey earlier this month, they were talking about sales growth of 7 percent for 1999, but with sales exiting the year at a 20 percent growth rate, which is a tremendous amount of momentum.
At the end of this year, we will get Windows 2000 from Microsoft, which should further personal computer spending. The Internet will continue its build-out, which will further communications spending. In biotech, we had 50 new drugs approved last year, almost double 1997, and this year we expect that 80 new drugs will be approved. There are 10 profitable biotech companies today. That number will probably double this year.
Q. How do you think this forecast will play itself out in the stock market?
A. For the last 18 to 24 months we have had a very strong rally in the big technology stocks, the Microsofts, the Dells, the MCI Worldcoms. If this move is going to continue, it will spread out to the smaller-cap issues. If it doesn't, I think the rally will die.
For example, Oracle is selling at or close to an all-time high, but Informix is selling at half its previous all-time high. Cisco Systems is extremely overpriced, but Premisys, another data communications company, is underpriced. There are lots of mid-cap, second-tier companies that are selling at big disparities to the leaders.
Q. Speaking of overpriced stocks, what is your opinion of Internet shares?
A. We are short most of the Internet stocks. My theory has been that you can pop a bubble like this without taking the rest of the market down.
The Internet bubble has to pop because the supply of stock is so large. Investment bankers are filing as many offerings as they can, and lots of stock is beginning to unlock from IPOs done last year as insiders are allowed to sell their shares.
Q. Has Internet mania inflated prices of issues that are not pure Web plays?
A. The Internet has infected the rest a lot more than I thought it would have. Cisco, for example, has gotten an extra run because people believe the overwhelming demand will spread out.
Q. What do you tell people who own shares in companies you consider overpriced or fully priced -- the Microsofts, Intels, Ciscos and Lucents of the world?
A. I tell people that companies like these are core holdings, that even if in the short term they go down, don't buy them so you can trade the shares. There are none I would run out and buy this minute, but none I would sell right now because they are grossly overpriced.
I think people should have 30 percent to 50 percent of their portfolio in these kinds of stocks. If you don't already own them, start dollar cost averaging into them over a six-month period. |
