Tag Archives: tech stocks

tech stocks are still seriously overvalued

Seventeen years ago, I had a front row seat for the nuttiest mania in stock market history. I vividly remember visiting now failed companies like Quokka Sports, Planet RX, Women.com, and Commerce One and listening to their managements confidently predict glowing futures. These firms, and many more, sold above 100x revenues–and they were far from the most overvalued stocks in the market. Other public dotcom companies had no revenues at all. Their stocks soared on nothing more than hopeful business models and lofty expectations of explosive growth.

I was in the ninth year of managing my hedge fund in 1999. It gained 8 percent that year, badly lagging the S&P’s 19 percent return and the Nasdaq’s staggering 85 percent (!) gain. In March of 2000, the Nasdaq hit an all-time high of 5132.52. Then, on March 20th, Barron’s magazine wrote a much publicized article that listed every dotcom by its cash, monthly cash burn, and the number of months before each company would run out of money if it did not raise additional capital. There were 207 companies on that list. A large number went broke. Some of those flameouts, like Pets.com, live on in infamy. The majority of them are only recalled by hardcore stock junkies, especially those who got burned by their implosion.

Remember Be Free, ZapMe!, SmarterKids.com, drkoop.com, and MotherNature.com? Most investors under the age of 35 almost certainly don’t—and that’s a problem, because what happened to those businesses could easily happen to many of the new tech sector darlings. Far more companies in today’s public and private markets will probably become tomorrow’s drkoop.com instead of the next Amazon or Microsoft. And as we saw so vividly in 2000, when the end comes, it comes quickly.

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so you want to be a stock picker

After a rough start to the new year, a lot of investors might be tempted to buy into “fallen angel” companies at or near all-time lows. They’re not hard to find. In the tech sector, GoPro and Fitbit, two profitable and recently public companies, have taken major hits. GoPro is down 90 percent from its all-time high. Fitbit has lost two-thirds of its peak value. Another sector where investors might be looking to buy low is energy, where scores of service and exploration companies are down 90 percent or more. Established names like Denbury Resources, Forbes Energy, Gastar Exploration, Basic Energy, Bill Barrett, and Ultra Petroleum, among others, have all been creamed, and could seem like bargains.

All I can say is: buyer beware.

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is it time to buy big cap tech?

Way back when I started managing money in the 1980’s, technology company stocks were revered by institutional and retail investors. The perception was that tech had a much better growth outlook than the overall market. Not surprisingly, tech stocks sold at premium valuations, often twice the price-earnings ratio of the overall market. Back then, and into the 90s, technology companies rarely paid quarterly dividends, and only a handful had stock buyback programs. Investors were content to let them reinvest cash in their businesses. But after the dotcom bubble went supernova, tech valuations crashed and stayed depressed for a long time, even as the strongest survivors of the meltdown grew fantastically and consolidated their holds on their respective sectors.

Despite this trend, I stayed away from big tech stocks like Apple and Cisco and Oracle. After the collapse, I was gun shy, and I’ve historically been suspect of famous stocks with massive market caps. They’re just too heavily covered for comfort. Every analyst and trader from Berlin to Beijing pores over every syllable of every statement they issue. And as the old saying goes, “When the microscopes come out, returns get microscopic.”

But I think it might be time for me to join the herd.

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