| WASHINGTON, July 20
WASHINGTON, July 20 I wasn't one of those
people who lost a bunch of money when dot-com stocks blew up in
2000, but to be honest, that's because I didn't make a lot of
money in the bubblicious run up, either.
I still remember naively waiting for new companies like
Amazon, AOL and Pets.com (remember that one?) to show a profit
before jumping in.
By the time any of those companies achieved profitability
-- or didn't -- their share prices had gone through the roof
and I had missed my chance for wealth -- or ruin.
Today, companies like LinkedIn LNKD.N, Groupon, Zynga and
Facebook are partying like it's 1999, making plans to come to
market or already trading at valuations that put them among the
For example, LinkedIn, which went public in May, reached
its year's high of $121.97 on May 19, and had a market
capitalization in the neighborhood of $10 billion, even though
it is expected to lose money this year. Maybe it will shake up
the world of recruiting and business marketing, but still, that
is kind of nerve racking. LinkedIn shares fell 7.5 percent in
one day this week after the company was downgraded by a
JPMorgan (JPM.N) analyst.
Some folks want to throw their wallets at those new
household names, and others -- perhaps more scarred than I was
back in 2000 -- wouldn't touch an Internet stock ever again.
"People got burned so badly that they have been virtually
ignoring that area," says Tom Roseen, head of research services
at Lipper, a Thomson Reuters company. Ironically, that might
make them a good investment.
Stock market watchers don't know what to do. Is this a new
bubble or a buying opportunity? The right answer probably lies
somewhere in between. Here are some thoughts:
-- It's not 1999. Back then, there were several new
companies across the tech spectrum going public every day
without any profits, and immediately they became objects of
bidding wars, remembers Scott Kessler, head of technology
sector equity research at Standard & Poor's. The frenzy now
seems concentrated in a narrow band of Internet/social
networking companies. "It seems like a handful of companies at
best," he said.
The bulk of technology companies, defined more broadly, may
actually be conservatively valued. U.S. science and technology
mutual funds have returned 2.14 percent year to date through
July 14, reports Lipper. That's less than half the 5.16 percent
logged by the S&P500 during the same period.
-- Keep emotions out of it. "Don't be too scarred by what
happened a decade ago," says Kessler. But he also cautions
investors not to "get caught up in the excitement and emotions
that surround these companies." Instead, follow the same
numbers that serious investors have used for years. Are there
earnings? How do the earnings compare to the share prices?
-- Think about corporate investments. Big U.S. companies
are sitting on more than $850 billion in cash. And it's pretty
clear, given the slow (or nonexistent) recovery in hiring, that
they are not spending that money on people. Maybe they'll spend
some of their cash reserves on productivity-improving
technology, boosting the tech sector.
-- Advisers like tech now. "The overall health of the
technology sector remains very strong," says John Challenger,
an outplacement consultant who watches employment trends. "In
fact, it is one of the best performing industries in the
economy at the moment."
Kate Warne, a market strategist for St. Louis brokerage
Edward Jones, says her firm is recommending traditional tech
stocks such as Intel (INTC.O) to their clients. "We think many
investors need to be adding dollars to this sector. Many of
these tech stocks are paying dividends and have very attractive
-- Use tried-and-true analysis techniques. People got in
trouble in 1999 because they stopped looking at bedrock figures
like earnings, and instead started paying for things like
"clicks" and "eyeballs."
Kessler says: "When companies pick and chose what metrics
they think are most appropriate, that suggests the other
metrics that people have historically used for decades are not
as favorable." Meaning that if you actually judged a company on
the basis of its earnings, you probably would not buy that
That's telling you something, says Warne. "If they aren't
making money, they probably aren't something you would want
today." So while the market isn't the same as 1999, the
applicable advice may be: Keep your eye on the bottom line. You
may miss the froth, but you can still make money.
(The Personal Finance column appears weekly. Linda Stern can
be reached at linda.stern(at)thomsonreuters.com)
(Editing by Maureen Bavdek)