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Nosebleed zone for 'Nets
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July 9, 1998: 11:32 a.m. ET
Invesco's Patricia Chadwick sees value elsewhere, particularly retail
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NEW YORK (CNNfn) -- High-flying Internet stocks may grab the headlines, but there is money to be made in businesses that are decidedly low tech. That's the view of Patricia Chadwick, who is the head of U.S. Equities at Invesco New York.
Chadwick spoke with CNNfn's "Business Day" Thursday about what she views as the overly high valuations of Internet stocks, the difficulty there will be in ringing up profits in that industry and the solid promise of retail stocks in today's market.
The following is a partial transcript of that discussion.
JOHN DEFTERIOS, CNNfn ANCHOR: What are you telling investors right now when you see these run-ups in Internet stocks and you see value elsewhere, particularly retail stocks that you like right now?
PATRICIA CHADWICK: Well, I do think that there's a huge valuation dispersion there. I would say that the Internet stocks, to me, seem to be in what I call nosebleed territory. It reminds a bit of the red chips a year ago in Hong Kong. I wasn't around for the tulip bulb mania, but it seems to be of that ilk. Ultimately what you've got to get is profits out of this industry. There are (a) few companies that are making a tiny bit of profit; most of them are not. And it seems to me to be a fairly low-barrier-to-entry business.
DEBORAH MARCHINI, CNNfn ANCHOR: Yahoo's results were better than expected.
CHADWICK: Absolutely, yes. I mean, I don't deny that that's happening when there's -- and I am a big fan of a tremendous amount of commerce being done on the Internet ultimately. But whether or not that means that all the companies are going to make money, whether they be the vendors -- I mean, Amazon.com (AMZN) isn't able to make money and I think that's -- what we really may get is an environment in which the consumer's the beneficiary because you'll get competition on the Internet. And you'll just get a downward spiral where one person -- I mean, where's the differentiation of the product? So, I think there are serious ways of not making money and I think it's going to take a lot of creativity to make money.
Not to say that there won't be winners, but the valuations are high. There's been a short squeeze in these stocks. These companies are very much privately owned. There's a very small amount of float out in the market place.
DEFTERIOS: … That's one of the reasons the stocks are surging. Right?
CHADWICK: Correct. And I think unfortunately it may be primarily individuals . . . who may not be truly aware they're going on the momentum and the excitement of it rather than the investment value.
MARCHINI: What would you counsel individuals to do with their money instead?
CHADWICK: Well, I think being invested is the right thing to do. But I really think you've got to look for some value there. And as you talked about lower tech, frankly in the U.S. right now the retail stocks continue to be a wonderful place to be, I think. … for once, we have an environment in which they're importing. They're getting the benefit of (a) higher priced dollar, so they're able to import things for a lower price. The consumers are all working, so they've got money to spend. And so, the pricing environment at the retail level is pretty healthy. I mean, Federated (FD) is doing well, CVS (CVS) just came out with wonderful (complimentary) store sales. So, I think the retail sector continues -- even though it's done very well this year -- it continues to be a good place to be.
DEFTERIOS: Now economists this week on this program are saying that the second half (of the year is) going to be much weaker and (will) perhaps (see) 1 percent growth in the fourth quarter. That doesn't sound like a great environment later in the year for retail stocks.
CHADWICK: Actually, I would have thought maybe this … the second and third quarters might be a little slower and maybe we'd start to get some acceleration again in the fourth quarter because we definitely are going through some kind of inventory correction. But basically I think the environment remains very good for a trend like 3 percent growth in the U.S. GDP.
MARCHINI: . . . Credit card debt was down sharply in the latest report. Does that worry you as far as the outlook for retailers?
CHADWICK: No. I think really what matters for the retailers is that the pricing environment is good for them and that the consumers are all working and earning money. 
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