It was only two weeks ago that everyone thought 2001 was going be another year of carnage in the technology market.
Wall Street analysts were revising their price targets down on technology bellwether stocks. In fact, in some cases total sector calls were made by the boldest of analysts who went against the tide and felt that the storage area of technology, considered to be the one safe haven, was also set for a downfall.
A day later the titans stepped in to save the day and challenged the call. In that short period we saw billions of dollars wiped off of companys’ market caps.
We have also now had the first of a series of earnings reported to give us a sense of what’s going on. What has been interesting is that those technology companies that missed the street consensus on sales and earnings saw their stock remain pretty flat, suggesting all the bad news was already priced in the stock.
Those who met or exceeded expectations — IBM, Juniper Communications and Nortel Networks, for example, saw tremendous buying power step in. What we have seen, then, is a variety of stocks that can go up even if the technology stocks struggle. And the breadth of the market has been better this year than it has last year.
In short, the new economy is looking not so bad after all, begging the question: Are the good times really gone?
I don’t think so. Instead, investors seem to be returning to a more rational assessment of the quality of businesses and the price they pay to own their shares.
Sometimes we have to get burned to learn our lesson. Those caught up in all the hype about huge profits to be made by day trading, or momentum trading, or IPOs learned that trading is a serious business — and it’s not the same as investing. Most investors claim they’re in it for the long term.
It’s important in this market to remember that long-term strategy. There are many factors that are coming under the microscope. I typically look at five primary issues: competitive advantage, experienced management, profitability, cash flow and valuation.
I have talked about some of these in previous columns. You’ve got to pay attention to these issues in the good times as well as bad. Perhaps most important for individual investors in 2001 is the SEC’s Regulation FD.
For the first time, all shareholders will get equal treatment. In time, it will level the playing field and everyone will benefit.
If you want to do your own picking, where are some of the key areas to look? The economy is slowing, but bandwidth will remain a hot commodity, and the mass adoption of streaming media raises the requirements for managing the distribution of Internet content.
Within infrastructure, I believe that the most consistent performance will be delivered by companies in sectors whose solutions are crucial to the mass adoption of the Internet by businesses: data storage management, complex and managed Web hosting,Internet communications and messaging platforms, content distribution and infrastructure services companies.
E-business is necessary for doing business and competing in today’s economy. Strategically, businesses must move toward e-business or be left behind by global economic and technological evolution.
Technology is available today for companies to identify, analyse and understand customers — not broad demographic or geographic segments, but individual customers and potential customers. Companies can now target specific advertisements, products and proposals to these individuals and manage all of the points of interaction between company and customer. This includes telephone, fax, e-mail, mail, Internet/e-commerce, call centres and help desks.
E-business also reaches into the back office to areas such as accounting, finance, human resources, production, engineering, logistics and supply-chain management.
The wild optimism about the Internet and the devices people use to connect to it — personal computers, PDAs and wireless phones — has tempered, but still provides opportunities for specific companies. These products are necessary for tapping into the Internet to conduct business and to reach customers.
Overall, I expect to see continued volatility in the Internet infrastructure sector in the near term. Longer term, I believe there is fundamental value in well-managed infrastructure companies and I encourage investors to focus on the core sectors outlined above.
What does this all tell me?
Despite the stomach-turning ups and downs that have seen the technology indices shed a large part of their value in the past eight months, despite the ever-growing list of technology companies that are laying off staff or calling it quits, despite the “I told you so” response among everybody, the new economy is still very much alive and well.
(Brian Pow is a technology analyst and director of research with Acumen Capital Finance Partners Ltd. Topics discussed in this column are the view of the writer and do not necessarily reflect those of the company.)
