Online travel, games stocks lead techs
Leisure is king, according to a tech-stock tally that separates the winners from the losers for the first half of the year.
Travel Web sites and game software makers were among the best-performing tech and Internet stocks in the first six months of this year, according a CNET Investor survey of tech stocks. The dominance of entertainment and travel would be even more obvious if the tally didn't leave out the smallest stocks, which can generate huge returns on relatively tiny transactions.
But CNET's list excludes companies whose market value at the start of the year was below $177.9 million, which is the lowest capitalization for the current list of Russell 3000 stocks.
Under that measuring stick, which whittles CNET's view to 690 companies, Priceline.com and Expedia were the sector's biggest winners for the first half of 2001; their stock prices picked up more than 500 percent and 380 percent, respectively, since 2000 ended.
The tech-heavy Nasdaq composite index was down 14 percent over the same period. The Russell 3000, one of the broadest measures of the U.S. stock market, fell almost 7 percent.
Also among the top 15 performers were Expedia rival Travelocity; 3D graphics chipmaker Nvidia; Activision, one of the top three publishers of game software; and Midway Games.
When including all tech-related stocks regardless of market capitalization, the leading performer is console game vendor Acclaim Entertainment, whose share price has increased more than 12-fold since the year began.
Expedia and its brethren are thriving because travel is one of the few e-commerce sectors that is making money, analysts said.
"Travelocity and Expedia are now showing a profit on a cash basis, so they've gone from concept to reality," said Robert Simonson, analyst with William Blair. "And they did it about a year earlier than expected."
The economic downturn of the past several months may have helped online travel agencies, analysts said. Business travel has diminished as companies try to cut costs, so airlines are trying to make up the lost business by offering cheaper tickets to consumers who flock to online Web sites to find deals, said Bob LaFleur, analyst with Bear Stearns.
"It's really been sort of a harmonic convergence for these stocks," LaFleur said. "You should enjoy it while it lasts."
Game software stocks surged this year as the latest generation of gaming consoles spread around the world.
Sony recovered from a rocky U.S. launch of PlayStation 2 last fall and
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Other side of the coin
The biggest decliners of the year sit about as far from consumer entertainment as it gets: wholesale communications carriers, corporate e-mail service providers, and e-commerce software vendors, among others.
360networks has lost 98 percent of its value since the year began. The fiber-optic network operator has become a poster child for its industry's capacity glut. The company, which last week filed for Chapter 11 bankruptcy protection, has shed more than $10 billion of market capitalization since the start of 2001.
Other big falls came with Critical Path, Ariba and PurchasePro.com-- all companies that concentrate on the corporate market. Most of the decline in technology markets has come as corporations--which generate 80 percent of technology spending, according to IDC--delayed or canceled contracts.
That makes consumer businesses such as online travel and games look even better. The steep gains enjoyed by online travel stocks means they're no longer bargains, LaFleur said. But the companies remain solid performers, he added.
"I wouldn't aggressively chase these (online travel) stocks at these prices," he said. "But I think you will continue to see these companies meet or exceed expectations, which is a lot more than you can say for most stocks these days."
Looking ahead
For the rest of 2001, many hardware makers and PC companies are looking to pull out of a slump that has left the entire industry battered. Some PC companies--along with related suppliers such as Intel, Applied Materials and Micron Technology--have been pointing to a rebound starting in the third quarter of this year.
Micron executives, for instance, cited the fall launch of Microsoft's Windows XP and a vigorous marketing push for new Pentium 4 processors as fuel to help ignite PC sales in the last months of 2001.
Many Wall Street observers remain skeptical, however.
Brokerage firms on Monday cut estimates for Compaq Computer and Gateway. Companies in other sectors, such as e-business software and network equipment, refuse to predict when a rebound will come.
"The optimism that prevailed in April and May has turned into caution," Morgan Stanley analyst Joseph Farley wrote in a recent report.
"In our assessment, the technology recovery that many were pointing to, or hoping for, in the North American market has not occurred on a meaningful scale. The European market appears to be weaker than expected. As June gives way to the summer holiday months, this trend does not bode well for the September quarter."
Or even for the next few years, if a recent IDC forecast is correct. The market research firm said a slowing global economy could reduce information technology spending by up to $150 billion from 2001 to 2003.