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THE DAY AHEAD: Putting tech in perspective

COMMENTARY--Amid all the angst over technology stocks, it's time for a healthy dose of context.

• "Don't fall into the tech trap. One trap for investors this year may be focusing a disproportionate amount of time and energy on technology. While it is an important sector of the S&P 500, the other three-quarters of the market are performing well. A broadly diversified portfolio in 2001 should be the most rewarding for investors." --Bear Stearns Chief Investment Strategist Elizabeth Mackay, in a recent note

It doesn't get any simpler than that. If you had a diversified portfolio, the tech sector gloom and doom wouldn't worry you as much. Even these quarterly blowups would roll off your shoulders. Tech malaise would be offset by strength in financial stocks or some other sector.

Don't misread us. Technology is a great place long-term, but it is one part of a bigger picture. Tech is also cyclical--very cyclical. If you haven't noticed, tech is on the downswing now. Over five years, you can win--the Internet isn't going anywhere--but don't place all your bets on technology and not plan to ride it out.

Sounds simple, but we've heard about a lot of folks who have overstayed their welcome with all-tech, all-the-time portfolios. Maybe you were tech happy because you remembered the easy money days. Maybe your investment horizon is five days instead of five years. The halcyon years are over.

Nevertheless, believers remain in denial about tech as nearly every CEO from Cisco's John Chambers to Applied Materials' James Morgan to Hewlett-Packard's Carly Fiorina says the same thing: The economy stinks.

Wall Street was forecasting a second-half rebound. Now it's a 2002 rebound.

Goldman Sachs last week cut earnings and revenue targets for a host of big information technology names--EMC, IBM, Hewlett-Packard and Brocade, to name a few--in a move to "be at least a little proactive," analyst Laura Conigliaro said.

On a conference call, Conigliaro said there was no sense in being a hero right now and buying tech stocks. "Tech stocks may be close to a bottom, but it's far too early," she said, admitting that the valuations were tempting in some cases. "The longer your time horizon, the more tempting it is."

In either case, the tech bottom may--or may not--be coming. It doesn't matter. Change your thinking about tech and diversify now.

Eight stocks to own?
Just because you diversify it doesn't mean you ditch tech completely. With that in mind, Thomas Weisel Partners released its "8 stocks to own" research note, but listed nine stocks.

Go figure. The brokerage acknowledged that information technology is slowing and the tech sector is a wreck, but it still maintains that some select companies will beat consensus estimates.

Here's the list:

• Enterprise applications. This area should be hot. Sales execution is good and the companies are diversified enough to weather a downturn. Thomas Weisel picked Ariba (Nasdaq: ARBA), Manugistics (Nasdaq: MANU) and Siebel (Nasdaq: SEBL) as companies that will top estimates. "Don't count on these stocks returning to historical valuation lows," said the brokerage. Those could be famous last words in this market.

• Infrastructure and analytics. Java is hot, average selling prices are high and there's return on investment for customers. The brokerage picked webMethods (Nasdaq: WEBM), Informatica (Nasdaq: INFA), Netegrity (Nasdaq: NETE) and Interwoven (Nasdaq: IWOV).

• Wild cards. Thomas Weisel also highlighted Gemplus International (Nasdaq: GEMP), which makes smart cards and mobile devices used in Europe, and Microsoft (Nasdaq: MSFT), which is likely to gain as legal risk evaporates.

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