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Fred Hickey, editor of the influential High-Tech Strategist newsletter, toils a long way from Wall Street, in Nashua, N.H. That distance, plus an enviable Rolodex amassed over 20 years in techdom, enables the fiercely independent analyst to keep his pulse on the industry without getting caught up in the hype.
Even now, with Nasdaq stocks down 70% from their March, 2000, peak, Hickey remains sour on the tech sector. BusinessWeek Personal Finance Editor Susan Scherreik recently spoke to Hickey about his views. (A subscription to his newsletter costs $120 annually and can be ordered by writing to P.O. Box 3133, Nashua, N.H. 03061.) Following are edited excerpts of their conversation:
Q: You're still a tech-stock bear. Why?
A: The big technology companies -- Dell (DELL
), Cisco (CSCO
), Applied Materials (AMAT
), and Intel (INTC
), to name a few -- are still beloved, still overowned, still grossly overpriced.
Q: Which means?
A: At some point, they're going to come down a lot, and they'll take the whole tech sector with them.
Q: What will be the catalyst for a sell-off?
A: Many investors assume that the economy will improve, that business will stabilize, that the second half of 2003 will be better. But I don't think that will happen. So when there are disappointments relative to expectations -- and there have been for years now -- I think there's going to be another level down.
Q: So tech stocks haven't bottomed?
A: No, we're not there yet. I'm patiently waiting for that to happen. When it does, I'll be buying tech stocks with great eagerness.
Q: How much further will tech stocks fall?
A: I think Nasdaq is going to have to be cut in half [from its level of 1,397 when Hickey spoke.]
Q: That's pretty drastic. What do you base your forecast on?
A: A rule of bear markets is that the old leadership from the prior bull market never leads the new bull market. By that measure, we still need to see the kind of capitulation in the big tech stocks that we saw in the last bear market in 1990.
Q: What were valuations back then?
A: Tech stocks were trading around 16 times earnings. Today, the big tech names still trade at 30 to 80 times earnings. We won't see bottom until the big tech names approach 1990 valuations.
Q: In the meantime, do buying opportunities exist?
A: A few medium-sized businesses are fairly cheap and, because they have virtually no debt, offer a margin of safety. One I like is Lawson Software (LWSN
), which sells mission-critical kinds of enterprise-software solutions to mid-tier companies. It recently traded at around $4.65 a share.
Q: Any others?
A: 3Com (COMS
) is interesting. They brought in a new CEO two years ago, Bruce Claflin, and he has been restructuring the company. He has taken the number of employees down from 12,000 to 4,000. Claflin has also slowed the cash burn so much so that the last couple of quarters have been cash-flow positive. The company also has $1.5 billion in cash, and its market capitalization is around $1.6 billion, so there's a nice margin of safety.
Q: Are these buy-and hold stocks?
A: No. There are occasional rallies in bear markets, and you could buy these stocks to play the rallies. You don't want to hold them long-term because when the big-name tech stocks tank, they'll bring everything else down with them.
MARCH 24, 2003 |
Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.
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