Investors Dump Technology Stocks Big sell-off indicates `bubble has popped'

David Lazarus, Chronicle Staff Writer

As the Nasdaq composite index plunged 286.27 points yesterday, or 7 percent, to 3,769.63 -- its second- largest point loss ever -- some were already writing obituaries for the market's long love affair with all things digital.

``The bubble has definitely popped,'' said Brian Belski, chief investment strategist with George K. Baum & Co. in Kansas City. ``The air isn't all out of it, but the bubble's been popped.''

``We all knew in our heart of hearts that it had to end someday,'' agreed Ulric Weil, an analyst at Friedman, Billings, Ramsey in Arlington, Va.

He noted that the tech-heavy Nasdaq has had its tail kicked since soaring to a record 5,048.62 on March 10. It is down 25 percent since poking its head above the 5,000 mark and is off more than 7 percent for the year.

A late sell-off caused the Dow Jones industrial average, which spent most of the day in positive territory, to drop 161.95 points to 11,125.13. The broader Standard & Poor's 500 Index shed 33.42 points to finish at 1,467.17.

``The gravy train has reached an end,'' Weil said. ``The good stocks will come back, but not to their former highs.''

The longevity of Wall Street's gravy train is, in fact, debatable -- and more than a few investors and market pundits insist that it has plenty of room yet to run.

``This isn't a stampede based on panic,'' said Eugene Peroni, research director at John Nuveen & Co. in Radner, Pa. ``The Nasdaq is just reacting to day-to-day events.''

Be that as it may, the approximately 5,000 companies comprising the index have lost about $1.6 trillion in combined value over the past month.

``We've had a different reason every day the Nasdaq has been down like this,'' said Arthur Hogan, chief market analyst at Jefferies & Co. in Boston. ``Today it was Microsoft.''

ANALYST'S OMEN

Rick Sherlund, a Goldman Sachs Group Inc. analyst considered one of the most influential watchers of Microsoft Corp., cut his quarterly revenue forecast for the software giant to $5.75 billion from $5.95 billion. He cited sluggish computer sales in making the revised estimate.

Microsoft's stock slid $4.50 to close at $79.38. The gloomy outlook from Goldman Sachs only exacerbated investors' jitters after a federal judge's April 3 ruling that Microsoft had violated antitrust laws.

The company's stock is down 32 percent for the year and is approaching its 52-week low of $75.50, set last May. This, of course, is bad news for Microsoft Chairman Bill Gates, who owns no fewer than 787 million Microsoft shares.

Other tech heavyweights were caught in the downdraft. Intel Corp. shares fell $8.88, to $121.88; Cisco Systems Inc. fell $5, to $65; and Dell Computer Corp. fell $4.06, to $51.38.

Analysts generally agree that the market's recent turbulence represents a search by investors for companies with proven fundamentals.

Like profits.

``People are clearly tired of seeing companies that don't have a foreseeable future,'' said Jefferies' Hogan.

``They're sick of hearing the same old story from guys like Amazon.com,'' he said. ``Investors want to see profits, not just revenue growth.''

Shares of Amazon, the Internet's biggest retailer, fell 11 percent yesterday to close at $56.38.

``This is very healthy -- unless you're heavy into tech,'' observed Baum's Belski.

BACK TO BLUE CHIPS

He said investors' newfound interest in old-fashioned notions such as actually turning a buck stems from the recent trend of shifting money away from high-flying tech concerns and back into blue chips.

``Some investors have had success lately buying the old stocks,'' Belski said. ``Then they looked again at tech and didn't see anything similar in terms of value.''

So how low can the Nasdaq go?

Todd Gold, technical strategist at Gruntal & Co. in New York, said he has pored over his charts and computations and believes the most likely bottom for the index's current rout is around 3,650.

But, he cautioned, ``It's like trying to catch a falling knife.'' In other words, making predictions amid such volatility can be a dangerous game indeed.

Gold wasn't surprised that the Nasdaq's collapse yesterday eventually dragged the Dow lower in late trading. He said few investors want to hold stocks overnight and are instead content to cash out before the closing bell and then replenish their portfolios the next morning.

Ultimately, Gold expects investors to return to tech, but to be a whole lot pickier about the companies they hand money to. He likes industry leaders such as Microsoft, Oracle Corp. and Sun Microsystems Inc.

``If you have the wherewithal to buy these stocks at bargain prices, seven or eight months down the road, you'll be in really good shape,'' he said.

As for the passel of other tech stocks -- the dot-coms and B-to-whatevers -- with shakier futures, Gold predicted that ``they will fall 80 percent or 90 percent off their highs and never return.''

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NASDAQ'S HARD TIMES Since peaking last month, the Nasdaq has plunged 25 percent. March 10: 5048.62

Yesterday's close: 3769.63 -286.27

Source: Bloomberg Chronicle Graphic

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VANISHING VALUE

Nasdaq companies have lost a combined $1.6 trillion in market capitalization in just four weeks.

March 10: $6.2 trillion Yesterday: $4.6 trillion

Source: Bloomberg Chronicle Graphic

E-mail David Lazarus at davidlaz@sfgate.com

)2000 San Francisco Chronicle

http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2000/04/13/MN24617.DTL

-- Carl Jenkins (Somewherepress@aol.com), April 13, 2000