ANALYST WATCH: Tech revival comes as no surprise

Not long ago, a column appeared in this spot recommending investors buy proven technology stocks while they were trading at or near 52-week lows, despite their lofty valuations. Just three short months later, it's time to look at the scoreboard.

Not surprisingly, the bulk of readers who bothered to respond to the article strongly disagreed.

In the days following its publication, my email box was stuffed full of venomous tirades suggesting that I was either a shill for the brokerage firms, a pathetic optimistic or simply an abject imbecile.

Hey, it's understandable that investors were in a panic.

The Nasdaq composite had just suffered through a brutal week of trading, closing at 3,320. The Dow was hurting too, trading right around 10,300.

But that was and still is my point.

It's in those times of desperation, when everything seems to point toward a bear market, investors should take a deep breath, divorce themselves from their emotions and ante up.

Those investors who believed in themselves and the market digested that column and used it, in some small way, as a battle cry. Those who sincerely believed the sky was falling and passed on the opportunity to buy those battered technology leaders have no one to blame but themselves.

"Instead of whimpering and whining about the recent correction in the stock market, investors need to show some backbone, quit feeling sorry for themselves and get back in the game. The worrywarts predicting doom and gloom and the end of the most prolific bull market in the history of the world are the same people who told you Amazon.com was a "great buy" at $225 a share."

I took a lot of heat from people about that paragraph. I guess readers weren't impressed with what, in retrospect, does sound very much like a pregame speech one would expect from someone like Mike Ditka or Vince Lombardi. Histrionics aside, the underlying sentiment still holds water. If you don't have the guts to ride out the storm, you won't be around to reap the benefits.

"What if people follow your advice and the market tanks another 30 percent? In my opinion, it's a pretty reckless article. Think about it if this is the start of a bear market, you just cost some folks a lot of hard-earned cash," wrote Phillip Hedgepath back in mid-April.

Well, Phillip, instead of dwelling on the 30 percent collapse that never materialized, let's take a look at how those poor investors would have faired had they invested their hard-earned cash in the tech sector as I suggested.

For starters, the Nasdaq is up more than 25 percent since that April meltdown. Granted, that's a very broad measure of the market's performance, but a nice tech-laden mutual fund would surely reflect that growth.

The Dow is up only 5 percent in the past three months but that's not where the fast-growing technology stocks call home. Still, 5 percent isn't a bad return for 90 days.

More important, investing should always be a long-term endeavor. Three months from now, the Nasdaq could be right back in the 3,200-point neighborhood. Would that make my argument any more or less valid?

Put it this way: The Nasdaq composite was trading at 2,778 points on July 13, 1999. So it's now up 50 percent in the last 52 weeks and half that growth came in the past three months.

Again, the technology isn't going anywhere. The Sun Microsystems, Ciscos and Microsofts still make great products. Sure, they're overvalued by "traditional" measures, but those who choose to be a slave to price-to-earnings ratios have missed out on some of the best-performing stocks of the past 10 years.

"It's been a long while since I read something that purported to be financial analysis/advice/etc and laughed this hard," wrote Michael Watkins at Concerta Consulting in April.

It's always nice to provide some ancillary entertainment for the readers but, Michael, it's also much better to laugh last.

Three months ago, the shakeout of bogus Internet companies began in earnest. As those ridiculous stocks plummeted, they pulled-- unfairly-- the rest of the sector down with them. Throw in rising interest rates and the odd profit warning, and you have the makings for a correction.

Not a bear market.

But now that interest rates appear to be stabilizing, investors are free to consider buying stocks based on the individual company's performance. If this past week is any indicator, technology companies are going to continue blowing away analysts' estimates in the next few quarters.

"Technology stocks were in the doghouse this spring, and they're coming out," said Alfred Kugel, senior investment strategist at Stein Roe and Farnham "They took a lot of air out of technology stocks, some of them more permanently than others. Now, the money is going back, but it's going to real technology companies, and particularly those that have better-than-expected earnings."

"Ultimately, after all the charts and earnings reports and analyst recommendations are factored in, it still comes down to whether or not individual traders believe in technology and the economic power of those technologies. If you believe consumers are going to stop buying software, routers, cell phones, PCs, wireless equipment, printers and the like, then you shouldn't buy technology stocks."

From Motorola to Ariba to Apple Computer, leading technology companies are still selling a lot of cell phones, software and PCs. And they're doing it at a record pace.

Next week, we'll see just how well the Intels, Microsofts and Apples have done in the past quarter, a quarter that usually pales in comparison to the last two quarters of the year.

It says here that leading technology companies will continue to meet and exceed analysts' estimates through the rest of the year. And those stocks aren't going to get any cheaper.

If you don't have the hair to buy Cisco at a price-to-earnings ratio of 177 or Sun Microsystems at 103, buy a "sensibly" priced stock like Phillip Morris (NYSE: MO) at 7.5 or Xerox (NYSE: XRX) at 18.5.

Either way, I'm eagerly awaiting those emails.