Mike Murphy: Top Techs
05/23/2003 12:00 am EST
"People are awfully enthusiastic right now, so there is probably some kind of correction ahead," says Michael Murphy, editor of Technology Investing. "But we don't really expect a slowdown. Managers have to buy growth stocks; they have to buy tech stocks. Despite what corrections occur in the interim, the next rally should be the real one and should start a multi-year run." Here's his outlook and favorite tech stocks.
"We think we're in the early stages of a technology recovery and the trends to watch are going to be different this time around. In the1980s the main discussion regarding technology was the PC and how this would impact the work environment. In the 1990s, the question became what happens when we start connecting all these PCs. The real sizzle in the 1990s was networking, connectivity, and what happens when you start sharing information. Now, everyone has access to powerful computer networks, all kinds of businesses and organizations have access to very powerful computer networks and the question you should be asking today is what are they going to be doing with those networks? What are people going to do with all this great technology? When tech stocks come back it probably won't be the usual suspects. Some won't bounce back and some new names will come along, and to get that answer, you have to pay attention to how people are using this technology. Information technology spending has turned up. It's not fast and it has a long way to go. But the turn has already happened, and it will only accelerate from here. So it looks like we are in kind of a U-shaped recovery. I think the big surprise is going to be that the right-hand leg of that U extends for a number of years and is much stronger than most people think it is going to be."
"This next cycle will be driven by such things as universal connectivity, the ability for everyone and all corporations to be connected all the time, the ability to use voice, data, video, wired or wireless, etc. But there are some other less known drivers. The hydrogen economy is coming, nanotechnology is coming, and truthfully, there will probably be something brand new that none of us are anticipating now. So we are somewhat cautious near-term, just because sentiment has become so positive and people are so bullish. At some point we're going to get a pullback and that's really going to tell us whether this was another fake out or if we can break out to new highs. So we're not totally out of the woods yet, but I'm encouraged. We often get a slump in the summer, but my estimate is that the next upturn, whether it starts in July or starts in August or starts in October, that's going to be the real one and the big surprise is going to be how strong it is and how long it lasts."
"Taiwan Semiconductor (TSM NYSE), because we want to be as leveraged as we can to the improvement in the semiconductor business. When business getes better they not only process more wafers and produce more chips, they also get to raise the price they charge. They are the clear leader in the foundry business. CheckPoint Software (CHKP NASDAQ), based in Israel, is today's current leader in Internet security in both firewalls and virtual private networks. This is one of the few areas where companies really want to spend money. I also like Portal Software (PRSF NASDAQ)- it could be a $10 stock. This is a very small company, but I'd buy it especially on any dip below $1.50. They have superb software for billing services. Just consider all the cell phone plans, and think who is keeping track of who got 800 free minutes, and which ones have free weekends, etc. In addition, a transitional company between health and technology for hospitals and is very doctor-friendly is Cerner (CERN NASDAQ). Their software is very comprehensive and allows hospitals to comply with all the government requirements. For example, it makes sure patients get their medicines and that none of these medications interfere with each other. It also does all the cost accounting. Finally, a pure biotech we like is ICOS (ICOS NASDAQ). This is a cell-signaling company. They have the second drug approved that competes with Viagra. It's already taken market share, as well as expanding the market. It should be approved in the US later this year. They also have a huge, rich pipeline based on their existing technology."