Path: bloom-picayune.mit.edu!enterpoop.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.ibd From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: \TITLE Date: Tue, 24 Nov 92 12:40:58 EST Message-ID: <11.1992Nov24.124058@AmeriCast.com> Lines: 134 11/24/92 TITLE #m#gm#m#Growing Demand For PCs Fuels Tech Rally Lance Ignon With computer technology stocks having raced higher for nearly two months now, one could forgive investors for biting their fingernails. Many people have been burned this year by these fast- moving, volatile stocks. But despite the potential for another short-term setback, Fideli- ty Investments analyst Arieh Coll isn't about to shy away from techs. Even some of the companies whose stocks have made big moves already remain attractive buys, he says - if they keep up the pace of new product introductions and continue to produce stunning growth. "Everyone recognizes that the stocks have moved higher quickly," Coll said. "But one mistake people should not make is to try constantly to call the top in a growth stock." After slumbering throughout the summer, technology stocks - loosely defined as those belonging to companies that make or sell computer hardware, software and related products -came alive about two months ago. Although the issues benefited from a gen- eral enthusiasm for growth stocks, they were clearly selected for special treatment. Half of the top 10 industry groups tracked by Investor's Business Daily are techs. The Computer - Local Area Network index has been ranked No. 1 among 197 groups for three weeks. The tech rally has been spurred by a combination of opti- mism and hard evidence. Many investors have been encouraged by President-elect Clinton's emphasis on high-tech research and development. Wall Street hopes this will translate to more demand for personal computers and accessories. Meanwhile, several areas of technology, including semiconductors, software and especially local area networks, have been reporting better-than-expected earnings. The powerful profits are being driven in part by the massive shift away from mainframe computers to personal comput- ers. The market has clearly reflected the trend. Investor's Business Daily's Com- Growing Demand For PCs Fuels Tech Rally puter - Mini/Micro index is ranked 19th among 197 industry groups. The Computer - Mainframe group is 194th. PCs continue to become more powerful and less expensive. This has encouraged many corporations to upgrade their systems with PCs. In so doing, they also have to buy new software and link their machines though lo- cal area networks. "Microcomputers are proliferating and causing additional demand for other equipment," said Jeffrey Malet, the Pacific Horizon Aggressive Growth Fund. Seasonal Factor Finally, there is a seasonal factor at work. Tech stocks typical- ly rally during the fall as several major investment banks spon- sor computer conferences and the giant Comdex trade show gets under way in Las Vegas. How long these factors will continue to drive techs is anyone's guess. But if history repeats itself, the issues will sell off again in the late spring, as investors anti- cipate a traditional slowing of sales during the summer. This year, however, semiconductor stocks remained reasonably healthy during the summer. "This was the strongest summer since 1983," said Doug Johnson, manager of the Safeco Equity Fund. "It gives people the feeling that something is going on here." Tech stocks also have benefited from the weakness in medical is- sues, which have been hurt by the uncertainty surrounding pending health-care reforms. When the growth stock rally kicked off in early October, many investors were left with less choice, and so piled into techs. Local area network stocks already had pointed the way to the broader rally. After selling off modestly last spring, the stocks went sideways during the summer and then broke out in late September. The group is up more than 43% for the year. Enthusiasm for networkers was in plain view last week when a new issue from PeopleSoft Inc. soared 143% from its offering price on its first day of trading. The company makes human resource management software that works with local area networks. Networkers can be broken down into two groups - routers and in- telligent hubs. Coll of Fidelity notes that revenue growth for router companies - Cisco Systems Inc., Wellfleet Communications Inc. and Crosscomm Corp. - is growing more than 80% a year. Earnings Expections Raised SynOptics Communications Corp., a leader among intelligent hubs, had revenue growth above 80% during the past two quarters. Lannet Data Communication Ltd. and Chipcom Corp. experienced similar revenue gains. These latter two stocks have lagged SynOptics, however. The leading network stocks, along with a few PC makers, have been the best at beating earnings expectations, which has forced analysts to raise expectations. That, in turn, has lowered the earnings multiples and made them look less expensive. For example, the 1993 estimates for SynOptics have been raised 90 cents a share in the past three months and now stand at about $3 a share, Malet said. That's an increase of 127% from last year. Analysts have raised their fiscal 1993 estimates by as much a 40 cents a share for Cisco. It is this kind of optimism that has driven Cisco up 46% since the beginning of October. Despite a 1/4-point drop yesterday, SynOptics has climbed 58% during the same period. Even though he suspects that both companies will remain leaders for some time to come, Safeco's Johnson says he's staying away from networkers because they have risen so far, so fast. "The main concern," he said, "is that there is a lot of ag- gressive money in those stocks and it is a hardware-related busi- ness, and I think there is a lot of competition. But those stocks will continue to go up as long as there is momentum." The only momentum stock Johnson is comfortable with is industry bellwether Microsoft Corp., because of the company's extraordinarily stable earnings record. Profits grew at an annual pace of 51% between 1988 and this year - only slightly lower than the 59% annual growth rate between 1984 and 1988. Malet is similarly bullish on Microsoft and adds Novell Inc., a leading developer of networking software, to his list of techs most likely to succeed. "You can't ignore Microsoft and Novell," Malet said. "Both companies are at the center of what's happening today - Novell for their local area networking, Microsoft for everything else." Other Favorites Microsoft was down sharply yesterday on word Goldman, Sachs & Co. lowered estimates. That put pressure on other software developers and spread throughout the tech sector. Malet also is bullish on Broderbund Software Inc., Media Vision Inc. and Creative Technol- ogy Ltd. Johnson's list of favorites also include Hewlett- Packard Co. and Tektronics Inc. Coll's top two picks are Cisco and Wellfleet, although he also likes software developers Broder- bund, Electronic Arts Inc. and Learning Co. This article is copyright 1992 Investors Business Daily. Redis- tribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM