Analysts differ on technology's future


Technology investors have been bruised and battered, but mercy may be at hand.

That's if you believe Alfred Goldman, the chief market strategist at A. G. Edwards & Sons in St. Louis.

Goldman says the swift decline in technology stocks, especially the big companies, is over, and that greed has been chased out of the sector.

The upshot is that investors and even the stocks themselves are acting much more soberly.

"I am an aggressive buyer of technology stocks, but only the biggest and the best," Goldman says. "I see a lot of upside potential here."

He's so optimistic that he expects a "good summer rally" that could propel the Nasdaq composite index up nearly another 1,690 points this year, or 44 percent, to around 5,500.

There are plenty of solid yet beaten-up companies to buy, and his favorites include Applied Materials Inc., which trades at $93.562, down 18.6 percent from its 52-week high; Dell Computer Corp., a $43.3125-a-share stock, down 27.4 percent; and Intel Corp., which rose last week to $134.1875, but has slipped 8 percent from its high.

"You have got to have the biggest and the best," he says.

But others aren't sure Goldman is right. They argue that technology stocks still have a ways to fall because many still cost too much.

Cisco Systems, for example, a company Goldman likes, trades in the $60 range and is down about $20 from its high. Yet, its price-to-earnings ratio - a gauge that measures its stock price against its earnings per share - is a lofty 125 percent.

"Generally speaking, tech stocks have gone from terrific to terrible, and some players have yet to bump bottom," says Alan Ackerman, market strategist at Fahnestock & Co., a New York-based brokerage house.

Ackerman says investors are still too frightened to start buying.

"We are witnessing a bit of buyers' paralysis where most people are not ready to commit and buy stocks on the dip," he says.

He doesn't blame them, either, especially since the Federal Reserve Board could again raise interest rates when it meets June 28. Another rise, which would be the seventh in about a year, could dampen demand for products from computer chips to software.

"There is no question that technology stocks ought to be part of one's portfolio ... but for now interest rate jitters have driven many investors to the sidelines," Ackerman says.

The debate about whether it's safe to buy technology stocks comes when the Nasdaq is down about 14 percent since the year began. Since reaching a high of 5,048.62 on March 10, it has slid about 30 percent.

Volatility has reigned, giving investors little comfort. In one week in April, the index fell five straight days, losing 1,125 points. That was after a stunning six-month run from Oct. 19 to March 10 when the index leaped 88 percent.

The sharp decline did two things to the technology sector, Goldman says: It created a "very attractive buying opportunity," and it shook the "heck out of peoples' confidence."

It shook Gil Knight, manager of the ARK Small-Cap Fund in Baltimore, so much that he slashed the fund's technology holdings.

About 70 percent of ARK Small-Cap investments were in technology at the end of February. Now, technology represents about 35 percent of the portfolio, Knight says.

"We did a lot of selling last month," he says. "I am not willing to totally throw in the towel and say the whole correction is over."

Whether technology stocks start rising again depends on the economy and the Fed's next move, Knight says.

"If you think that the Fed is in fact finished tightening, you [technology investors] are probably going to be all right," he says. But if the Fed raises rates again, "I think these techs are probably going down again."

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