NEWS AND COMMENTARY
November 14, 2000
Stocks Climb as Tech Shares Lure Bargain Hunters
By Jean Dolan, WSJ.com
Tech Stocks Still Not Bargains ... Weiss comments
NEW YORK - Stocks posted solid gains Tuesday, extending Monday's late-day recovery, as investors returned to the battered technology sector. But analysts were skeptical that the gains will last.
The Nasdaq Composite Index surged 134.60, or 4.5%, to 3101.40 at late morning, after dropping 62.27 points in the previous session. The Dow Jones Industrial Average rose 120 points, or 1.1%, to 10637 after losing 85.70 points Monday.
Tech stocks led the market higher Tuesday, after Monday's volatile session sent the Nasdaq composite to close below 3000 for the first time in over a year. But late-session buying pulled both the Nasdaq and industrial average above Monday's worst levels.
Bob Streed, portfolio manager for Northern Select Equity Fund, said Tuesday's climb is simply a rally from oversold conditions. 'Bargain-hunting is what's driving it ... [after] the Nasdaq has been hard hit lately,' Mr. Streed said. 'Even today's turn doesn't begin any new uptrend.'
The market has been battered by disappointing earnings reports from technology bellwethers, such as Hewlett-Packard and Dell Computer, raising concerns that the slowing economy is hurting corporate profits. The ongoing battle over who will be the next U.S. president added another element of uncertainty, which traders dislike, to the market.
Even with the drubbing that the Nasdaq took yesterday, tech stocks are still overvalued, and bargain hunters will find that their treasures are just fool's gold. The average stock on the Nasdaq still has a price-to-earnings ratio of 126. For the top 100 companies listed on the Nasdaq, the P/E ratio widens to 130. That means that it will take the most popular tech stocks, on average, 130 years worth of current earnings to earn back its share price. I hope that all of the bargain hunters are willing to wait that long.
What's more, the earnings woes of technology companies have shown no signs of ending. Every day, new evidence shows that the economy is grinding to a halt, and company profits are suffering as a result. Tech stocks have much further to fall before we'll consider them a bargain.
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