High Tech Stock Outlook by Praveen Asthana, Anderson & Mannheim “Jay, you ignorant slut,” said Frank Quattrone of Deutsche Morgan Grenfell, showing the kind of spunk that has helped DMG Technology Group become one of the top investment banks in Silicon Valley. “Yo Mama!” replied Jay Hoag of Crossover Ventures, clearly unimpressed. Such was the gentlemanly repartee that graced the ears of the 600 attendees who came to listen to the High Tech Stock Outlook panel discussion on Jan 22. In addition to Quattrone and Hoag the panel consisted of Michael Murphy, author of the California Technology Stock Letter, and Roger McNamee of Integral Capital Partners. The panel was moderated by Norm Fogelsong of IVP. At first glance, there isn’t too much to be enthusiastic about in high tech stocks. For the last three years, the Lipper high tech stock index has lagged the S&P 500. In 1997, the high tech stock index rose about eight percent while the S&P rose 30 percent and the Dow rose 20 percent. The companies in Robertson Stephens’ high technology group showed a decline by YE97 of 20 percent in large cap valuations and 35 percent in small caps with over a third of these companies off 50 percent from their highs. But the panel seized on this evidence as the basis for recommending that tech stocks were the place to put your money in 1998 and beyond. According to the panel, investors appear to have overly focused on the negative when it comes to high tech stocks and thus exited them in the latter half of 1997. Therefore, it is likely that the excess P/E has been worked off and the valuations are more reasonable now. This, combined with good fundamentals (for some, not all stocks), strengthens the logic for investing in high tech stocks, particularly for the long term investor. After all, the information age is just beginning its career and we’re in year five of a 20 year run. Furthermore, Murphy believed that the Asian crisis will hit non-tech stocks more severely than tech stocks and as it does so, it should drive investors into high tech stocks. Given all this, the advice from the panel was to be fully invested in high technology to the tune of 100 percent minus your age. So what stocks look good in high technology? We move now from the general to the specific and look at the picks of the pros. Murphy favored semiconductor capital equipment and once again biotechnology (hope springs eternal in the human heart). Murphy recommended Zoma, Chiron, Axes Pharmaceuticals, Intel, Integrated Device Technology, LSI logic, Applied Materials, Mattson and Cyber. Hoag favored Peoplesoft, BAAN, Manugistics, Saville Systems, Yahoo, CNET, and Cambridge Technologies. Quattrone recommended companies that can shrink the networking switch onto a chip, and companies that have an intellectual property licensing model such as Rambus. Finally, McNamee recommended Cisco, PMC Sierra, Dell, Advanced Fiber Communications, Altera, Xilinx, Micromuse, Brio, Dazzle, Calico, NetDynamics, Metaware and Pivotal Software. So log-on to your E-trade accounts and buy, buy, buy. The experts have spoken. But before you get carried away, keep in mind the Wall Street Journal test that shows that experts often fail to beat the stocks picked by throwing darts at the WSJ stock listing. Confused? Just remember the words of that closet high tech investor and sometime baseball legend, Yogi Berra. If you come to a fork in the road, take it. This program generously supported by BancAmeria Robertson Stephens, Deutsche Morgan Grenfell Technology Group, Hambrecht & Quist, The Nasdaq Stock Market.
High Tech Stock Outlook