TCS Daily

Choice Tech Companies on Sale

By James K. Glassman - July 18, 2001 12:00 AM

For contrarian tech investors, the July 16, 2001, edition of the Wall Street Journal appeared to be one big buy signal. A headline on the front page of the Marketplace section announced, "Has Growth Of the Net Flattened?" The Julia Angwin report began: "After a seven-year growth spurt, Internet adoption by U.S. consumers is running into a wall." The front page of the investing section offered similarly gloomy news. Its top story described U.S. corporations' shrinking budgets for technology purchases. The implication - more trouble ahead for battered tech firms and their shareholders. In fact, once everyone agrees that the tech market is a total wreck, then we've probably hit the moment when the next bull market begins.

As I noted in my column of July 2, all of history's great investors have at least one thing in common - they spot the value that's being ignored or overlooked by the average investor. Very often this means buying stock in unpopular companies that have stumbled and lost the confidence of most investors. Frequently these companies have real strengths that are obscured by the struggles of the moment. So, in a strange way, a report that tech companies really are in deep stuff and are getting in deeper may actually be a message that the worst is already reflected in the price - and good times lay ahead. This is no knock on the Journal (to which I frequently contribute). Their reporters are accurately communicating the state of the industry right now. The question is how you respond to the information.

Let's say that you're a big-time believer in the power of technology and the long-term strength of the U.S. economy, as I am. You have money to invest and you're looking to enter the market at the exact bottom of the tech downturn. How do you recognize that precise moment? And will it happen this week, next month, or three years from last Sunday? The great news for buy-and-hold investors is that it doesn't matter. If you buy shares in a great company and then hold them for years and years, you're almost certain to achieve average annual growth in double digits, if history is any guide.

We can't possibly know when we've hit the bottom of this market, but we do know that right now Wall Street is running a sale on technology firms. Shares in some great companies have been marked down dramatically, and now is as good a time as any to rummage through the bargain bin.

There are two companies in particular that I think have been priced to move. Trading at $143 per share on March 10, 2000, Agilent Technologies (Symbol: A) has since been marked down to a recent $30. The former testing and measurement division of Hewlett-Packard, Agilent now trades at a P/E ratio of about 19 and has no long-term debt. In the 12 months ending in April 2001, Agilent increased revenues almost 22% and increased earnings more than 27%. This is a huge supplier to both the telecom equipment sector and the biotech/pharmaceutical market. Agilent delivers very high-tech products for testing and analyzing everything from digital networks to DNA. And it owns some valuable technology used in leading-edge optical communications. This is a leader in supplying two great industries: information technology and biotech.

Then there's Corning (GLW). The company's recent stumbles have been well publicized, in large part because Corning is the world's largest maker of fiber-optic cable. This puts Corning at ground zero of the tech-telecom meltdown. With so many U.S. fiber networks lying around with excess capacity, analysts aren't optimistic about future sales. And it's true that the near-term future looks bleak. But there's room to grow overseas. And once large numbers of U.S. customers start using broadband (high-speed Net connections) and companies start creating new applications to capitalize on those connections, the analysts may be amazed at how quickly those "dark" fiber networks begin pulsing with light. When U.S. customers are making video phone calls, sometime in the not-too-distant future, I can only imagine where Corning shares will be trading.


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