The bull may be ready to awaken

Some big money is now on the prowl for tech bargains

April 15, 2001|By Bill Atkinson | Bill Atkinson,SUN STAFF

Investors couldn't go wrong owning technology stocks 15 months ago. Most every technology issue in their portfolios seemed to be soaring. It didn't matter if it was Cisco Systems Inc. or Intel Corp. or a smaller company such as Aether Systems Inc. or Redback Networks Inc.

Then, everything collapsed.

Now, some money managers are starting to pick through the wreckage with an eye for gems. They believe that the crisis in technology stocks could be nearing an end and they are buying shares in companies that they believe will recover and have bright futures.

Their timing looks pretty good. The technology-laden Nasdaq composite index jumped 14 percent last week, the biggest weekly gain in 10 months for the long-battered Nasdaq.

"It is time to start looking," said Lisa Rapuano, who runs the Legg Mason Special Investment Trust, a $2.1 billion fund. "When prices are this low, you have an opportunity that is very unusual: to buy very high-quality companies ... at low prices."

She recently bought more shares of Symantec Corp., the Internet security firm; Cabletron Systems Inc., a networking hardware and software company; and even the soundly thrashed Internet retailer, Amazon.com.

She's also eyeing Aether and Research In Motion Ltd. as well as emerging telecommunications companies such as Level 3 Communications Inc. All have been beaten down.

"We are looking at everything now," she said. "There is just a lot of interesting stuff."

She isn't the only one nibbling.

Larry Puglia, manager of the T. Rowe Price Blue Chip Growth Fund, which has $6 billion in assets under management, has been buying EMC Corp., the electronic information storage company, as its shares have fallen. He has also snapped up shares of Sprint PCS, AOL Time Warner Inc. and Vodafone.

"I do think it is time to be shopping," Puglia said. "We are looking, and we are buying, but we are being careful buyers. We are selectively buying in technology but not necessarily saying it is the bottom."

While some money managers are still warning that it is too early to dip into technology stocks, others are convinced that the decline has fed upon itself, punishing good and bad companies alike.

The Nasdaq composite is down 61 percent from its high of 5,048.62 reached March 10 last year. And the volatile Philadelphia semiconductor index, which tracks 16 semiconductor companies, including Texas Instruments Inc., Advanced Micro Devices Inc. and Applied Materials Inc., has fallen 55 percent over the same period.

"I do not think there is any whistle-blowing that says today is the day ... but I think there is a heck of a lot less risk," said Bruce E. Behrens, co-manager of the $1.5 billion Flag Investors Communications Fund. "I don't want to be too guilty of being too rosy. I am feeling a little more optimist, but I don't want to be too optimistic."

The technology boom and bust reminds Rapuano of the Crash of 1929 and the swooning stock market of the early 1970s when the Dow Jones industrial average plunged 45 percent in 24 months. Yet, there has been no earth-shaking event, like a war, runaway inflation or spiking energy prices to trigger this collapse, she said.

"It is not the end of the world; it is not a massive global meltdown," she said. "That gives us reason to believe that the end is near."

Encouraging to the case for higher stock prices ahead are the facts that the Federal Reserve Board has been cutting interest rates, inflation is still low, homes are being built and cars sold. In addition, demand for technology such as cell phones, fiber optics and broadband cable will eventually pick up as the industry works through the downturn, experts said.

"I think we are close to the bottom," said David M. Citron, a money manager in Baltimore with Carret and Co., who about a month ago began buying technology stocks.

No matter how low the prices, not everyone is convinced that this is the moment to buy into technology. Some experts argue that stocks are still too high. Cisco, a stock widely held by investors, currently has a price-to-earnings ratio - stock price divided by annual per share earnings - of 27 times earnings. That is down from 193 times earnings in March 2000, but still too high by some measures.

Others worry that the downward trend may continue.

"I think there is a `catch-a-falling-knife' problem," said Hugh Johnson, chief investment officer of First Albany Corp., an Albany, N.Y.-based brokerage firm. "Picking stocks that are in downtrends can be dangerous."

Johnson, who considers himself a conservative investor, has been tempted to buy technology stocks. And he hopes the current rally is the start of something big. But he will remain cautious. "That means I will be late to the party, and I know that, and that tends to create agony, but it also saves some deep despair that can be associated with buying too early," he said. "Anyone who bought in January knows what I mean."

Although technology stocks have been rallying, nobody knows for sure when a recovery will begin in earnest. It may have begun last week, but last week's gains could vanish and the recovery could wait until next month to start, or next year, the experts say.

Puglia believes that there still may be more negative surprises. "I'd say we have gotten 60 to 70 percent of the bad fundamental news depending on what the economy does and probably that fundamental news is 80 to 90 percent factored into stocks," he said.

Of course, picking winners is a challenge. Many of the stocks that have fallen as much as 80 percent or 90 percent may never recover.

Rapuano is content to sift through the ashes and pluck the battered stocks that she believes will pay off in time.

When looking to buy stocks, she said, remember "that low prices are better than high prices."

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