Mike Murphy: Technology Opportunities
03/07/2003 12:00 am EST
Few Financial experts are as prolific as Mike Murphy. He is the editor of the California Technology Stock Letter, Health Investing, Technology Investing, and Biotech Investing. While many investors have given up on the technology sector, Mike Murphy sees opportunities.
"Technology is in an interesting situation right now because there was lot of excess capital and a lot of it is becoming obsolete very quickly. You can have a lot of money invested in a semiconductor fabrication plant - billions of dollars that run eight-inch wafer systems, and you just might as well throw everything away. Because Intel, IBM, and Taiwan Semiconductor have gone ahead and spent the money to build the next generation plants, and their production costs are now 40% to 50% below their competitors who have not been able to upgrade. So technology is making its own base obsolete. We see that everywhere in PCs and fiber, etc. When you look at the numbers, spending in technology started to pick up in the June quarter for the computer business and picked up for other tech companies in the September quarter, and it was up more in the December quarter. The big drag in capital spending is in the old economy - transportation equipment, airlines, and industrial equipment and manufacturing. So the question is, what is going to cause the rest of the economy to start spending money on technology. I think the answer is that they have already started to do so a little bit. We've seen the stronger areas like retail, housing, and autos begin to upgrade technology.
"There are a lot of compelling, new applications coming along, such as voice input, which is finally a practical technology. Consumer products are going digital at an extremely rapid rate, and consumers are the biggest force in the economy. Meanwhile institutions are very under-invested in tech stocks. Those who wanted to sell, sold them a long time ago. The people left holding these shares are unlikely to sell now. Coming out of the last six bear markets, technology was the number one performing group five times; the other time it was the second best performer. There is a myth around that the prior leaders of a bull market are never the kneaders of a new bull market. On the contrary, they almost always are. When you look at traumatic changes such as the shift we've seen from an old economy to a new economy, the old economy never comes back. But it's the new economy stocks that take the lead. To judge the future of technology we look at semiconductors; there is no way the technology market can grow if the semiconductor market isn't.
"There are conservative technology stocks, and they are in the healthcare technology sector. Within the computer tech sector, the safest bets are the big gorillas. Two stocks I like are IMPATH (IMPH NASDAQ) and ResMed (RMD NYSE). Impath is a laboratory that specializes in typing cancer tumors. They probably do this better than anyone else in the world. A fair chunk of their business is not related to insurance. It is simply people paying out of their own pocket. Because the first step towards treating a tumor is correctly identifying it. On the other hand, the company has developed a huge database of tissue samples, that they now sell as a research product. Res-Med is a fascinating company. They specialize in sleep apnea, a condition where people wake up perhaps 100 times a night without knowing it. Sleep apnea causes a lot of cardiovascular problems. So a whole lot of heart doctors are starting to send patients to sleep clinics where they may get fitted with this Res-Med mask. It's a dominant company with about half the US market."