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Tech Bargain Hunters Fuel Market Rally

March 23, 2001|From Times Staff and Wire Services

Thursday's impressive stock market turnaround was led by--get this--technology shares.

Strong showings by tech blue chips Microsoft Corp. and Intel Corp. helped the Nasdaq composite index turn a 2% slide into a 3.7% gain in the final 90 minutes of trading.

Along with Hewlett-Packard Co., which trades on the New York Stock Exchange, Microsoft and Intel also contributed to an even more dramatic reversal in the Dow Jones industrial average, which was off almost 400 points and mired firmly in bear-market territory before rallying in the last hour to close down 97.52 points at 9,389.48.

Analysts said the tech rally suggested that more investors are looking for bargains in the sector, which has been massacred over the last year.

"Technology has already taken it on the chin, and there is value in those" stocks, said Henry Cavanna, who helps manage $24 billion at J.P. Morgan Fleming Asset Management.

At day's end, the Nasdaq composite was up 67.47 points at 1,897.70 in extremely heavy trading. The index remains 62% below its March 10, 2000, peak, and even with the late turnaround Thursday, three Nasdaq stocks fell for every two that rose.

Intel, down 60% in the last year, surged $3.13 to $28.69; Microsoft, down 48%, advanced $3.94 to $54; and Hewlett-Packard, which has lost 45%, gained $1.66 to $30.89.

Microsoft rose after Goldman, Sachs & Co. analyst Rick Sherlund said the company probably will meet reduced revenue estimates for its fiscal third quarter. Even as Sherlund said personal computer makers are cutting their own profit forecasts, he said Microsoft probably doesn't have much further to fall.

Some analysts argue that the price-to-earnings ratios of tech leaders have gotten cheap enough--or even too cheap.

Intel now trades for 42 times the 69 cents a share that analysts, on average, expect it to earn this year. But based on estimates for 2002--which assume a rebound in tech orders--Intel's P/E now is 30, or half its peak P/E last year.

Microsoft's P/E based on estimated earnings for this fiscal year now is 30 as well. Though that is well above the average blue-chip stock's P/E of about 20, tech-stock bulls say those shares deserve higher P/Es because the companies' long-term growth potential still appears to be above average.

Among other Nasdaq winners Thursday, Dell Computer climbed $1.56 to $26.25, Oracle rose 75 cents to $15.50, and Vitesse Semiconductor surged $6.14 to $40.27.

"Sun Microsystems, Dell, Cisco, Microsoft, Oracle--these are at prices that were unheard of a year ago," said Joseph Keating, who oversees $6.5 billion for the Kent Funds in Grand Rapids, Mich. "At some point you wonder, 'Am I going to be kicking myself in 12 months if I didn't buy some of this stuff at these prices?' "

Market bears, however, say the latest Nasdaq rebound is more of the same: a brief rally in a continuing bear market. Pessimists say tech stock valuations still are too high.

Semiconductor chip stocks were among the day's biggest gainers. The Philadelphia semiconductor index, which has fallen by more than half in the last year, shot up 12.3%.

"Chip makers have been down persistently so they've reached the point of oversold conditions," said Mona Eraiba, principal at New York hedge fund management firm Rosetta Management Group. "Things aren't improving from an order point of view, but the rate of decline has decelerated."

Analysts said the sector was buoyed by Wednesday's announcement from leading memory chip maker Micron Technology that its semiconductor operations produced $1.05 billion in sales in the second quarter, which was ahead of some analysts' expectations. Micron shares gained $4.69 to $46.70.

The news from Micron hints at possible renewed strength in the personal computer chip sector, Eraiba said, as the sector works through an inventory backlog.

Other memory chip makers also gained ground, such as Cypress Semiconductor, which rose $1.72 to $19.92, and U.S. shares of Germany's Infineon Technologies gained $2 to $36.75. Rambus rebounded from near 12-month lows, rising $5.66 to $22.95.

Communications chip makers also strengthened, although the verdict was mixed over whether the sector also is recovering. Communications component company Applied Micro Circuits gained $4.44 to $24.19, even after a downgrade by Robertson Stephens to "long-term attractive" from a "strong buy" rating.

Semiconductor-manufacturing equipment makers also gained ground, led by one of Nasdaq's most active stocks and sector bellwether, Applied Materials, whose shares rose $4.56 to $49.44.

Gains in tech shares may have come at the expense of sectors that had been providing relief from Nasdaq's yearlong slide--at least until recent weeks.

Many drug stocks, which surged in 2000 while technology stocks plunged, declined for a third day. Pfizer lost 31 cents to $35.67, and Eli Lilly fell 87 cents to $73.35, though they pulled up from their lows.

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