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Techs in the spotlight again
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February 12, 1999: 6:15 p.m. ET
Technology retreat may continue next week as sector's stocks return to Earth
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NEW YORK (CNNfn) - Technology stocks look to remain a key point of interest next week and investors may see a continuing retreat in the sector.
Technology shares struggled on Friday, with the tech-laden Nasdaq Composite index falling 83.66 to 2321.89 after setting a single-day point record Thursday.
The drop-off may have been a sign that investors are finally beginning to worry tech stock valuations are higher than they should be, said Larry Wachtel, market analyst at Prudential Securities.
Wachtel said even though the Nasdaq has looked strong lately, it's only because some of the biggest names on the index have been pulling the rest along.
"It's a bit of Microsoft (MSFT), Cisco Systems (CSCO) and WorldCom (WCOM) and you can't run a ball game with just those handful of stocks," said Wachtel.
He explained investors were finally getting the hint that things were overheating in the sector and predicted this was the beginning of a fallback which could continue.
"Pretty soon those stocks hit a wall, a valuation wall, and they kind of settle down. I think that's what we're seeing right now."
However, technology stocks have been helped along by first quarter earnings results coming out of the sector and Dan King, Internet analyst at LaSalle St. Securities said that could help them avoid a full retreat.
"This is certainly a sector which is affected by news and we're waiting for more good news to come out before these stocks do turn around," said King.
Going forward, King said he was looking at Broadcast.com (BCST), an Internet-based broadcaster, and CNet (CNET), a provider of technology news services, as solid bets within the Internet sector.
All eyes on Dell
Dell Computer (DELL) will be a highlight stock next week. The computer maker is scheduled to report its latest earnings Tuesday.
Analyst expectations are that it will just meet its earnings forecasts and, as often happens in the technology sector, its fate could determine how other computer-related issues fare.
Dell's shares were hit hard Friday, dropping 12 to 89-7/8, after several prominent analysts made lukewarm comments about the company..
Prudential's Wachtel said Dell's woes represent a buying opportunity and he'll be looking hard it at next week.
Small cap opportunity?
The coming weeks could make smaller cap stocks more important to investors in other sectors, according to Wachtel.
"The trend has been to bid the big blue chip stocks up and then take them down and bid them up again," he said. "I think the averages are a little bit of a misquote here and you have to be watching the broader market."
Robert Morse, manager of the Wall Street Fund (WALLX), agreed, saying most of the big money has already gone into the large cap stocks, so they're fully valued.
"The mid caps and small caps both offer value for the next three to five years," said Morse, who believes many of these shares in the coming months have the fundamentals investors need to look for.
"When you're buying real growth and want real performance, you buy excellent management and good products and you diversify across industry sectors."
Right now, Morse is keen on Analog Devices (ADI), a Norwood, Mass.-based manufacturer of digital integrated circuits.
Also in the mid-cap sector, he likes ALZA Corp. (ALZA), which makes pharmaceutical products which provide predetermined doses of medication to patients over time.
"ALZA's making a major dramatic shift in their product structure under very, very good management where their license fees and revenues are being supplanted by actual product sales."
Bonds walk a fine line
As for the bond market, 30-year Treasury prices fell after a $35 billion government auction glutted the market, dropping 1-31/32 points to 97-14/32, while the yield climbed to 5.42 percent.
Jim Bianco, research director at BiancoResearch.com, said bonds are walking a fine line and the Fed might get pushed to make a move.
"It's kind of a high-wire act here," said Bianco. "On the one hand, we want to slow down the economy, but on the other hand, we don't want to hurt the stock markets.
"Right now, we're in that precious middle and we'll have to see whether or not we tip towards one end or the other."
-- by staff writer Randall J. Schultz
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