With Nasdaq at records, investors ask what's next for tech

NEW YORK - When the Nasdaq Composite last hit record highs during the dotcom era, fund manager Walter Price struggled with justifying paying 400 times a company's earnings for rapid growth.

Now, with the Nasdaq setting new closing records for the first time in 15 years (although it is still short of its all-time intraday high), valuations are a sliver of what they were during the last boom. Instead, Price worries that the companies that have powered the 25 percent rally in the Nasdaq over the last year are likely to plateau.

"What brought us here isn't likely going to keep pushing us forward," said Price, lead portfolio manager of the Wells Fargo Advantage Specialized Technology fund. "We have a large position in Apple, but to say that Apple is going to double from here is not realistic."

It is a concern of other top technology fund managers, as well. With the Nasdaq Biotechnology index .NBI up more than 60 percent over the last 12 months and social media companies such as Facebook FB.O jumping 50 percent over the same time, the gains in both of these sectors will likely be muted in the year ahead, fund managers say.

Instead, they are looking to what they see as the largest growth areas over the next three years: cyber security, cloud services and electronic payments.

Price, for instance, has been cutting his position in Facebook and adding to cloud computing companies such as Cognizant Technology Solutions Corp and payments company Visa Inc. He also remains bullish on Amazon.com Inc, which posted operating margins of 16.9 percent last quarter in its Amazon Web Services cloud computing division.

"That's worth the value of Amazon today," given the potential for growth in the cloud business, he said. "To me, you are getting all the retail business for free."

Sandy Villere, co-portfolio manager of the Villere Balanced Fund, boosted the overall level of technology stocks in his portfolio by 17 percent, the greatest increase among funds tracked by Lipper. Most of that went into adding to and buying so-called back office technology companies such as DST Systems Inc, which specializes in data management in the insurance, healthcare and financial services industries.

"I don't think the Nasdaq is overvalued at this point. I'm just looking for tech companies that dominate a niche, and this niche is growing," he said.

There are few signs that fund managers as a whole are overly bullish on technology, even as the Nasdaq posts records. The average fund has 17.7 percent of its assets in technology companies, roughly matching the average of 17.8 percent invested in the sector in 2010, according to Lipper data. The benchmark S&P 500 index, by comparison, has a 19.7 percent weighting in technology, its largest sector.

Even fund managers who pride themselves on making out-of-favor bets say there are still opportunities in biotech despite its rally.

Daniel Kozlowski, portfolio manager of the $4.6 billion Janus Contrarian Fund, added a position in animal health company Zoetis Inc, a spinoff of Pfizer Inc, in the fourth quarter. Yet he's also adding to little-followed hardware companies such as Knowles Corp, which makes microphones used in the iPhone.

"We're only interested in special situations, such as spinoffs, in biotech because so much of that market is so expensive. We prefer instead to go places where there's little interest and be in early and get out early," Kozlowski said.

Skip Aylesworth, portfolio manager of the Hennessy Technology fund, said that he now has been reducing his position in biotech companies such as Gilead Sciences Inc and moving more money to cyber security companies, which now take up approximately 10 percent of his portfolio. As more companies move key parts of their businesses to the cloud, the importance of protecting data will only grow, he said.

"The development of these companies is not driven quarter-by-quarter," he said. This is a trend that's going to play out for at least the next three years."

source: www.abs-cbnnews.com

After 15 years, Nasdaq recoups losses of dot-com crash

NEW YORK - Mark April 23, 2015 as the day the Nasdaq market finally left the dot-com crash, and billions of dollars lost to the first technology bubble, behind.

It's been a long time -- 15 years, one month and 13 days to be exact. On Thursday, the Nasdaq Composite Index finished at a new closing high, 5,056.06, topping the previous mark set on March 10, 2000 of 5,048.62.

This time around, the gains on the Nasdaq exchange might hold on for a bit longer.

The upstart market that symbolized the new era of the Internet economy and digital life -- as opposed to the old heavy-industry stalwarts of the Dow Jones Industrial Average -- climbed spectacularly from 1996 to early 2000.

Over that time the index quintupled to mint thousands of new multi-millionaires and fund sharp and quirky new companies rooted in San Francisco and Silicon Valley. The Dow barely doubled in the same period.

Investors and media celebrated it as the "New Economy," leaving the old one behind. The Nasdaq exchange itself was the symbol, trades humming through computers while the New York Stock Exchange still had dealers operating via slips of paper and hand signals on a physical trading floor.

But the Nasdaq, trading many companies that proved to be more dreams on paper and in garages than sources of tangible profits, then crashed as spectacularly, losing nearly all of the late 1990s gains in 30 months, and stunning hundreds of thousands of investors who ventured into the markets for the first time drawn by dot-com dreams.

The market bottomed at 1,114.11 in October 2002.

Spurred by the economy's growth under low interest rates and higher government spending, it slowly regained the trust of once-burned investors and pressed back toward the 3,000 level, only to have the rug pulled out again with the financial crisis.

That time, all the markets plunged, and the Nasdaq, which was strengthening with more proven Internet and biotechnology companies, fared less bad than the other key indices, the Dow and the S&P 500.

From the 2009 bottom, the Nasdaq bounced back faster and farther. Yet by 2013, when the Dow and S&P began topping previous records and continued to do so, the Nasdaq was still two years from total recovery.

Apple leads the way

The return to the heights of 2000 has been driven by significant shift in the makeup of the Nasdaq market.

In 2000, the index was led by software companies and chipmakers: Microsoft, Cisco, Intel, Oracle, and Sun. Yahoo was the seventh largest company on the exchange, Amazon ranked 41st and Apple 45th. Google was just emerging in the industry, and only joined the exchange in 2004.

Today it's Apple at the top, now the largest company in the world, worth $755 billion by market capitalization.

Google is the Nasdaq's second largest company at $372 billion, and Microsoft is only third, worth $356 billion, its share price still one-third lower than the peak 15 years ago.

Amazon, the online retailing king, is fourth and a company no one had dreamed of at the time, Facebook, fifth.

Intel and Cisco are still among leading companies, but are now flanked by telecoms -- Comcast and Qualcomm -- and biotech firms like Gilead, Amgen, Biogen and Celgene.

Those, and a range of other less technology-focused companies like Walgreens and Starbucks, have underpinned what analysts say is a more healthy rebound grounded in real profits and growth of the companies.

Michael Stiller, a technology sector analyst at Nasdaq, points out that the world itself has changed since the early dot-com days. Smartphones have revolutionized personal communications, access to the Internet has spread globally through China, Africa and elsewhere, and now doing business online is near-universal.

But like the S&P 500, which barely missed setting a new record Thursday (the previous one set just six weeks ago), the Nasdaq market has reached its new highs with the help of the Federal Reserve keeping interest rates at their lowest levels in history for more than six years.

That has pushed money toward stocks that, at more normal interest rates, might not sustain such valuations, say some analysts. But valuations on the Nasdaq are still far more sane than they were in 2000.

The price/earnings ratio for the market Thursday stood at about 25 times, compared to about 190 when the market peaked in March 2000.

source: www.abs-cbnnews.com