|
Barrett gazes at Nasdaq stars
|
 |
July 17, 1998: 9:17 a.m. ET
Salomon strategist says next big trend is Net's bandwidth-expansion stocks
|
NEW YORK (CNNfn) - The record-breaking rise of the Nasdaq this summer on the back of heavyweights Microsoft, Intel, Sun Microsystems, Cisco Systems and Dell Computer have made high-tech stocks the darlings of investors.
Their growth numbers are breathtaking: Intel (INTC) is up more than 120,000 percent since issuing its IPO in 1971. Microsoft (MSFT) is up more than 40,000 percent since its debut 12 years ago. Sun Microsystems (SUNW) is up more than 2,000 percent, and Cisco (CSCO) is up 25,000 percent since it started trading eight years ago.
Andrew Barrett, technology strategist with Salomon Smith Barney, spoke Friday with CNNfn's "Business Day" about the meteoric rise and future of these leading Nasdaq issues.
Here are highlights of that discussion:
JOHN DEFTERIOS, CNNfn: We . . . continue to scratch our heads and look at the numbers, but then you see the numbers for Microsoft, and they continue to be strong. Just three or four months ago, nobody wanted to touch the stock. What has changed around in the company?
ANDREW BARRETT, SALOMON SMITH BARNEY: Well, there has been a psychology change in the stock price and it really is driven by the products. People are recognizing that the product cycle that Microsoft is entering into is one of the most robust it's been in in its known existence. And we think a lot of naysayers have been proven wrong. Investors have been very quick to jump on this. We've seen sales of Windows 98 go through the roof, and I think '98 is going to be a very good year for the company.
DEFTERIOS: This price-earnings ratio, still very high. And when you look at the numbers that they're generating right now, that doesn't bother you?
BARRETT: It doesn't bother me with earnings consistency. Microsoft continues to deliver the number. (It) beat the number. In fact, we saw them beat it by two points last night. So in that case we would see continued strength based on its consistency.
KITTY PILGRIM, CNNfn: What's your view on Sun Microsystems, and how important is Java to their bottom line?
BARRETT: Well, that's a good question. Sun surprised the Street last night. The numbers came in roughly two cents ahead of expectations, and that was surprising, given the weakness in Japan. There had been some concern on Wall Street that Sun might have a little bit of a problem. But the reality is they showed that they are going to do pretty well.
Java is a misunderstood situation, and investors have a difficult time understanding what Java is. We think in '99 and 2000, it's going to be a really big story for Sun.
PILGRIM: So you think that is their key to their future growth?
BARRETT: I think it is their niche. It's what separates them from another hardware player.
DEFTERIOS: … Looking at the concentration of the Nasdaq Composite driven by the Intels, Microsofts, Dells, Cisco -- is this market going to broaden out or are the fund managers going to stick with the tried and true names?
BARRETT: I think liquidity is key here. And what we're seeing [is that] these larger names, have liquidity in and out -- and with earnings consistency; and if we see earnings recover in '99, they're going to stick with the big names.
PILGRIM: We need to pick your brain a bit on the future trends, because you follow this so closely. We hear these terms like "bandwidth expansion" and "convergence." What should we be focusing on as the next big trend?
BARRETT: Well, the next big trend -- and I think this is the paradigm shift in our economy right now -- clearly is the communications sector. And that has to do with bandwidth. And the biggest problem with communications is that bandwidth is constrained. Anybody who has logged on to the Internet knows quite simply, it is very, very congested. So those companies that are involved in bandwidth expansion will ultimately be the companies that win over the next three years. Cisco Systems is a very good player in here. . . . 3Com (COMS) is a very good play in here. These are names on the bandwidth side. Intel, in fact, is a bandwidth expander. Because the faster microprocessors process all of this information.
DEFTERIOS: And you find that's a much safer investment than the Internet stocks, because they are based on valuations? They are based on something actually you can put your hand on?
BARRETT: Absolutely.
DEFTERIOS: Because it's the infrastructure, right?
BARRETT: Absolutely. I think, when you're looking at the technology, you've got to play earnings, you've got to play companies that have earnings visibility and that have a legitimate business in terms of valuation. Internet companies right now are a little momentum-driven.
PILGRIM: You have AOL (AOL)as a buy, though, don't you?
BARRETT: America Online we do have as a buy. AOL does have revenues, though. That's what separates it from some of the other players that won't be earning money until 2002 or 2003. 
|
|
|
|
|
 |
|
