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A Palm Reading on Value of 'New Economy' vs. 'Old Economy'

Stock Exchange lets readers listen in as Times staff writers James Peltz and Michael Hiltzik debate merits of individual stocks.


Palm Inc. (PALM)

(Jim: Don't buy)

(Mike: Don't buy)

Jim: I'll warn you, Mike, that I've come to today's chat loaded for bear. And a good part of it doesn't have much to do with Palm, which makes those hand-held electronic organizers that are all the rage.

Mike: Uh-oh. Is that why we're reviewing just one stock today?

Jim: You got it. Palm is emblematic of what a lot of pundits are calling the "new-economy" stocks that supposedly are all that investors should buy these days--you know, while they turn their backs on those ugly, decrepit "old-economy" stocks.

Mike: Right, Palm's initial stock offering early this month--its parent 3Com spun a small chunk of it off to the public--had a tremendous amount of hype, and now Palm is worth $31 billion. That's more than 3Com, even though 3Com still owns more than 90% of Palm in addition to its other businesses. I suspect that's why, when you say "emblematic," I hear a sneer in your voice.

Jim: You heard right. By what logic is 10% of a company worth more than 90%? I won't beat about the bush: I think this new economy vs. old economy debate in the stock market is baloney and doing a great disservice to the average investor by throwing them a major head fake. So, can I borrow your soapbox?

Mike: Yes, but then I'm going to want it back. But first, let me ask you something: Do you have a Palm organizer?

Jim: No, even though I guess my brain is more organized than not. Look at all the years I've endured verbal abuse from our colleagues here because I have one of the neater desks in the newsroom.

Mike: Now don't hide your light under a bushel! Yours is the cleanest desk. You are the most organized person I've ever met in my life. In fact, sometimes I think of you as my Palm.

Jim: Watch it, my friend.

Mike: When I'm looking for a document that's on my desk--somewhere beneath six layers of accumulated paperwork--I often find it easier to just ask if you've got it. Then you typically pull out a desk drawer and there it is!

Jim: Gee, thanks, I'm so flattered. All I need now is an LCD screen on my forehead. So you don't own a Palm?

Mike: No.

Jim: Why not?

Mike: Because if I did, I'd lose it. My bosses here once gave me a pager, and half the time the only way I could find it on my desk was to dial its number and listen for the beep.

Jim: Anyway, there's no getting around that the Palm is a very cool gadget.

Mike: It's the first device that actually got traction, or critical mass, in an industry that had tried for years to get off the ground.

Jim: You mean electronic organizers.

Mike: Yes. When the Palm first emerged as the Palm Pilot a few years ago, it really took off because it was useful, convenient and it had handwriting-recognition software that worked. That's a technology many companies tried to perfect, notably Apple Computer with its Newton. But that product was so bad it turned into an extended joke in the Doonesbury comic strip.

Jim: And, of course, Palm and its rivals today have turbocharged their organizers so they do much more than store addresses and calendar dates.

Mike: Right, they connect to the Internet, run games and so forth. And the future beckons even more. Some new products can download movie clips, though I don't know what for. If it's for people who like to watch movies on their Palms while they're crossing busy intersections, that'll be rather a self-limiting market, no?

Jim: And get this, Mike--unlike so many of those "dot-com" companies, Palm actually is turning a profit.

Mike: I'm sorry, a what?

Jim: A profit.

Mike: Can't be.

Jim: I'm serious. In the six months ended Nov. 30, Palm earned $23 million on sales of $435 million, and its sales are surging. That's another reason why Palm went public on March 2 at $38 a share, and the stock promptly skyrocketed as high as $165 that day. And then . . .

Mike: Then the stock nose-dived, and lots of people took a bath. The stock is now in the mid-$50s. So once again, we've seen the greater fool theory of investing.

Jim: The greater fools being the ones who bought at $120 or $150 a share.

Mike: Actually, anything more than $55 at this point.

Jim: And that's a lesson in itself. I like Palm, and the stock could very well go back up. But there's another lesson here: If anyone thinks Palm is a guaranteed winner just because it's part of the new economy, and that Johnson & Johnson or Coca-Cola or any of the other old-economy stocks are has-beens, I've got a bridge to sell them.

Mike: You know, we are a species--we Americans--who love to put things in easy-to-comprehend categories. Then we saddle each category with a stereotype so we don't have to think about individuals. You know . . . men and women, blacks and whites, the rich and poor, Texans and non-Texans . . .

Jim: And I hate to say it, but among the worst offenders are the media.

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