Subject: [NEXTEL-1] Technology Stocks to the Rescue? Maybe Not for Long

From: Marcel <[email-masked]>
Date: Sun, 24 Nov 2002 16:31:25 -0500

http://www.nytimes.com/2002/11/24/business/yourmoney/24PORT.html?ex=1038805200&en=9b71c06413409b07&ei=5040&partner=MOREOVER

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November 24, 2002

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PORTFOLIOS, ETC.
Technology Stocks to the Rescue? Maybe Not for Long
By JONATHAN FUERBRINGER

OSS S. MARGOLIES, manager of the Salomon Brothers Capital fund, seems surprised — or even embarrassed — when he talks about his technology stocks and how well they have done recently.

His stocks have climbed in the technology surge that is leading the current stock market rally, with the Standard & Poor's 500-stock index up 19.8 percent since Oct. 9. The tech rally is also raising hopes that this broad market rebound will keep going, unlike the summer surge that fizzled in late August.

Unfortunately, that's a hope Mr. Margolies would dash.

In the short summer rally, when the overall S.& P. 500 rose 20.7 percent from July 24 through Aug. 22, technology stocks rose but played no big leadership role, which some analysts argue is a prerequisite for a sustained market comeback. The S.& P.'s telecommunications services index, which includes the likes of Cisco Systems, Dell Computer, I.B.M., Microsoft, Sun Microsystems and Yahoo, rose 21.9 percent, leaving it fourth among the 10 big sectors, while the information technology index, which includes AT&T, BellSouth, Nextel, Quest Communications and Verizon Communications, ranked eighth with a gain of 16.6 percent. The best performers were utilities, up 32.2 percent, and health care, up 29 percent.

Since Oct. 9, the information technology index is up 45.9 percent while the telecommunications services index is up 38.4 percent. These performances are well ahead of the other eight big S.& P. 500 sectors. Financials are in third place, up 26.5 percent, and utilities are fourth, up 24.3 percent.

Although the technology portion of Mr. Margolies's portfolio has grown from a 7.5 percent slice in January to 25 percent now, his outlook for the rally is not comforting.

"I am not going to be adding," he said when asked if he would snap up more tech stocks. In fact, he said, if this tech rally continues and the price increase raises technology to 30 percent of his portfolio, he will sell. "I am most likely to bring it back down to 25 percent to 23 percent," he said.

He said that there was still an opportunity to buy now and benefit from a short-term rise in prices. But, he added, "from an investing point of view, its probably better to wait and get more information, to wait until the fundamentals get clearer."

He said he has done well because he ignored large-capitalization technology stocks in favor of those, like Ciena, the maker of optical network equipment, whose prices had been beaten down so much that many investors probably thought the companies were going out of business. "This is the relief rally," he said. "These companies are not going out of business."

Eleven of the top 20 performers in the information technology index were trading at less than $5 on Oct. 9, with Ciena up 117 percent since then, to $5.58 from $2.57. Among the other low-price rebounders are Corning, PMC-Sierra, Xerox, Lucent Technologies and JDS Uniphase.

Vadim Zlotnikov, the chief equity strategist at Sanford C. Bernstein & Company, has just trimmed his exposure to technology stocks and is thinking of reducing it further, after overweighting it in late August.

Valuations for technology stocks, he said, referring to rising price-to-earnings ratios, "have gone from being moderately attractive to, at best, neutral." He said the rally in technology has been based on just meeting lowered expectations for the sector in the fourth quarter this year. "Once companies reset the expectations low enough, the rhetoric becomes more positive," he said.

A continued tech rebound is also unlikely, he said, because he expects only a 3 percent to 5 percent increase in capital spending next year. That would be bad for the sales of technology companies and for the overall economy.

For these reasons, he said, "I don't want to get overly optimistic" about the tech rally. "We are close to running the course."

Market Turbulence Does Little to Curb Investors' Optimism  (October 15, 2000)
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