Shrugging off Compaq
Despite warning from PC leader, market still looks strong, managers say
NEW YORK (CNNfn) - When Compaq's earnings warning didn't trigger a downdraft in the stock market, it showed that investors consider the problem to be company-specific, money managers said Monday.
And that in turn means the market has greater potential on the upside, Joseph McAlinden, chief investment officer with Morgan Stanley Dean Witter Funds, said on the "Moneyline News Hour with Lou Dobbs."
Even the tech stocks that did get beaten up Monday probably remain good long term investments, added Paul Meeks, portfolio manager at the Merrill Lynch Technology Fund.
For his part, McAlinden said he was looking at stocks at out-of-favor sectors beyond technology, including energy and industrial areas.
Here are highlights of that interview:
LOU DOBBS, ANCHOR: Twenty-two points down on the S&P futures in the early morning. We opened with 17 down; everyone is expecting a selloff. What happened?
PAUL MEEKS, MERRILL LYNCH TECHNOLOGY FUND: Well, of course with Compaq 's (CPQ) news after the close on Friday, which shocked the hell out of everybody, it really put the fear of God into the entire PC food chain -- which isn't just the PC vendor. It's other hardware vendors, the semiconductor companies and the semiconductor cap equipment companies. We end up the day with the typical tech stock down just a percent, but those stocks that I mentioned did really badly.
JOSEPH MCALINDEN, MORGAN STANLEY DEAN WITTER: Adding to the irony, Lou, as you know, in the morning call, technicians were saying that this Compaq news was going to be the beginning of a long-awaited correction and take us down to 9500, and here we are at new highs.
DOBBS: It makes one wonder. Let's go, Paul, if we may, to the news on Compaq, because this is a stunning story, really. Because the leading PC maker in the world, Eckhard Pfeiffer, a CEO who's been given great garlands for the performance of the company
and appropriately, comes out with the latest of warnings on earnings, and then tries to suggest that this is an industry-wide problem. What do you make of that?
MEEKS: You know, I've been relatively light on the PC vendors vs. my index for quite some time. I've actually always felt better about Dell (DELL). I think Dell will continue to execute flawlessly compared to the others. I actually feel a bit better about Gateway (GTW), even, then Compaq, though, I do have some Compaq -- we have a billion, five - we probably have about a percent position.
But the news today is pretty troubling; you know, to have such a big cut from the consensus estimates, which were already lowered recently.
MEEKS: Down 50 percent from the 31 cents expected. And to have this announcement come late Friday afternoon, on the 9th of April, is really surprising to me.
Now I think that Compaq's problems are fairly serious. I think if you're going to take a look at the state of the PC industry, maybe Compaq is about 60 percent of its own problems, and the rest it is the PC industry. So I do think it's, the bulk of it, Compaq specifically.
MCALINDEN: The traders quickly came to the conclusion that it was a company-specific problem, and, you know, as you said, the markets had a tremendous recovery.
DOBBS: Well, you're talking about corrections, and some of your colleagues talking about this is going to be the trigger point -- we have been hearing a lot about trigger points -- for a correction or sell-off. We had just the inverse occur.
What does this suggest to you for the future of the market?
MCALINDEN: Well, it's sort of the same story. We're entering the ninth year of an economic expansion, the economy is growing robustly, interests rates are down -- there's no sign of the Fed tightening -- and the money keeps pouring into the stock market; and so, it's probably going to keep going up, from an evaluation basis.
DOBBS: You say that reluctantly, Joseph.
MCALINDEN: Well -- yes -- I can see it going up another 1,000 points here.
DOBBS: OK, how about you?
MEEKS: I feel very bullish on the technology sector, long term. You know, now you have 15 percent of economy in tech, going to 50 by the year 2008. You have about one-fifth of the S&P 500's market cap in technology, and if you're underweighted in your equity portfolio in technology, you're making a big bet.
DOBBS: What should investors be doing here -- buying aggressively in terms of technologies?
MEEKS: No, I am particularly worried about the short-term outlook for three slices of the tech sector. I'm worried about the PC vendors -- we've already seen some cracking. I'm worried about some of the IT services companies that have made a good day's pay solving year 2000 problems, and I'm worried about some of the software companies as well. Other industries within the tech sector are OK. But I want to get through some conference calls with those three industry groups before I jump in.
DOBBS: Well, here we go. This is the week to get through them, as we have the big one tomorrow -- of course, Intel (INTC). Joe, your thoughts.
MCALINDEN: I'm sticking with buy low, you know. I've said to you before, it's not so much in technology. I think that the energy stocks, which we've talked about before, and are just beginning to look like they're working and the basic industrials, my calls are really boring. I think the smokestacks, basic industrials, energy stocks are where you want to be over the next two years.