|
| Think of the premier technology companies, and names like Microsoft (MSFT
), Cisco Systems (CSCO
), and Dell Computer (DELL
) probably come to mind. But none of those companies made it onto BusinessWeek's ranking of the 50 best-performing companies in the Standard & Poor's 500-stock index this year -- or last year. In fact, most of the tech companies that made the BW50 list in 2001 fell off in 2002, including storage king EMC (EMC
), computer maker Sun Microsystems (SUNW
), and database-software leader Oracle (ORCL
).
This year's BW50 officially includes just three tech companies, none of which are really household names. Chip-equipment maker KLA-Tencor (KLAC
) is No. 6, electronic-transaction processor First Data (FDC
) is No. 43, and computer-systems manager Electronic Data Systems (EDS
) is No. 47. The latter two are on the list more for their skill at providing services than for their technology leadership. Even including as a tech outfit International Game Technology (IGT
), which makes high-tech slot machines and networks to connect them and is No. 44, the point remains: None of tech heavyweights of the past cracked the top 50.
GET OVER IT. The lack of overlap between companies that are considered premier technology names and BusinessWeek's 2002 list of the best corporate performers hints at a cold truth: Perception of tech-sector performance continues to far exceed actual results. Even though the Nasdaq is down about 60% since March, 2000, in some ways the technology bubble is still aloft.
"What it boils down to is that there are still an awful lot of people holding on to underwater tech stocks and hoping they will come back," says Peter Cohan, an author and technology strategist. Even though two years have passed since the Nasdaq peaked, "people are still having a hard time letting go," he says. "They're basically deluding themselves into thinking that nothing has changed."
Technology valuations further prove this point. The sector is trading at a price-earnings ratio of more than 40 times its projected 12 month earnings -- about twice the multiple of the average stock in the S&P 500. Granted, it's normal for p-es to be elevated when earnings are depressed. But analysts are also betting on a substantial rebound in tech profits this year. Analysts surveyed by First Call expected them rise this year by a heady 42% on average.
"ELEVATED" P-Es. "Investors are still willing to pay up for what's expected to be more rapid earnings growth than in other sectors," says Sam Stovall, investment strategist at Standard & Poor's. "Even given the bursting of the technology bubble and concerns about the quality of corporate earnings sparked by Enron's downfall, my feeling is that the p-e for technology companies continues to be elevated," he says.
The dearth of technology names this year stands in stark contrast to 2000's BW50, which counted 24 names from the technology or telecommunications sectors. Indeed, four of the top five companies on the list that year were techs. Tops for the third consecutive year in 2000 was Microsoft, now ranked 117th. Third, fourth, and fifth were Cisco, Oracle, and EMC, now ranked 413th, 84th, and 447th respectively.
Last year's list also included a good number of technology players, with 15 companies from tech and telecom making the list. Most of those names are now ranked in the 400s. They include chipmakers Xilinx (XLNX
), which went from 17th to 440th, and Micron Technology (MU
), which fell from 16th to 461th. Several companies, including EMC, Tellabs (TLAB
), Sun Microsystems, and Oracle could boast making the list every year it has been compiled -- until this year. Not one company has made the BW50 for five straight years.
GONE SOUTH. The methodological explanation for why more technology names aren't on the list this year is pretty straightforward. The BW50 is derived from nine measures of corporate performance over the prior year. The calculation includes the prior year's stock performance, sales and earnings growth, and profit margins. Many technology companies showed sharp declines in key categories over the prior year.
EMC is a good case in point. In the year prior to the BW50's Feb. 28 cut-off date, its sales dropped 20%, and its adjusted net margins went from 20% to -7.2%. Since Wall Street had been expecting EMC's prior record of growth to continue, investors sold en masse when revenues dropped, resulting in a punishing 73% loss in share price. Thus, EMC's tumble from 12 to 447.
"Belief in the power of technology to grow no matter what happens to the economy became a massive cultural phenomenon" in the 1990s, says Cohan, "People still have to let go of that." He believes it may be another year or two before companies resume spending on technology, and the sector can return to its former track record of growth.
The BW50 is a look back at the prior year. But in the case of technology companies, it just might be telling us something about the future, too.
MARCH 25, 2002 |
Copyright 2002 , by The McGraw-Hill Companies Inc. All rights reserved.
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