COMMENTARY--Maybe the optimists are right. Maybe technology stocks have bottomed.
I'm not a market technician, but you don't have to be an expert on Bollinger bands or MACD trends to get the sense that traders and investors don't feel like driving technology stocks below their recent lows. The Nasdaq composite index today appears to be heading for its best two-day gain in three months, and if you discount the first month of this year for the traditional January effect, the index might be heading into its best run since last summer.
To be sure, there were other two-day spurts in the fall and winter that produced similar gains, but their pattern was a dismal one that usually started with a big gain and then tapered off quickly the following session for just a slight increase. Today's action, on the other hand, is building on a rally that started late yesterday afternoon.
Wall Street still needs signs of an economic rebound before the market sees a long, hearty climb. Quarterly conference calls scheduled for the next few weeks might help, but I doubt it. Most companies already said the near-term future remains unpredictable, and that uncertainty probably hasn't cleared up yet.
Clouds notwithstanding, you can at least say that technology stocks have finally reached the point where they're appear reasonably priced compared to the rest of the market. Not based on price-to-earnings ratios necessarily, but that's not the best metric to use at this point, because no one knows for sure how earnings will look over the next few quarters, let alone next year.
But there is one stable measuring stick: assets, which are traditionally expressed as book value. The value of cash, property, equipment and real estate is far more reliable than First Call estimates, which are nothing more than guesses these days. Even the corporate fantasy known as "goodwill and intangible assets" is fairly consistent. Goodwill assessments might be exercises in creative accounting, but at least they're predictable each quarter.
And based on price-to-book ratios, many technology stalwarts are actually cheaper than old-line, blue-chip names.
Cisco Systems (Nasdaq: CSCO), for instance, this morning traded at 3.6 times book value. Intel (Nasdaq: INTC) carried a price-to-book of 4.2. Microsoft (Nasdaq: MSFT) checked in at 6.6, Sun Microsystems (Nasdaq: SUNW) at 4.
Compare those figures with the price-to-book numbers of Wal-Mart (NYSE: WMT) at 7.7, Philip Morris (NYSE: MO) at 6.9, General Electric (NYSE: GE) at 8.3 and Exxon Mobil (NYSE: XOM) at 4.
There's a slowdown in IT spending, but does anyone really think network equipment, software or server growth will grow at a lower rate than mass-market retail or snacks and cigarettes over the next several years? Computer chips may be a maturing market, but it's not as if oil is growing faster.
No news there, obviously. Most investors and fund managers know where the growth is.
Everyone on Wall Street has been screaming "oversold" for quite awhile, but I found that hard to take seriously as long as technology continued to garner far higher values from Wall Street than other segments of the economy. But that isn't true anymore, not after the action in recent weeks leading up to this one.
That doesn't mean tech stocks will bounce like a rubber ball. It's still too early for a strong rebound. In any case, the ideal scenario would be something more gradual.
But at least it might be time for tech stocks to stop falling. 22GO >