Looking ahead, investors returning from their Labor Day vacation will have
little to chew on in terms of earnings releases this week, although on the
economic front, PPI, import prices and the trade gap could draw attention.
Tech stocks ended August little changed, and sentiment that the economy is
slowing down could further restrain bidders. Yet, the Business Roundtable's
quarterly survey of U.S. CEOs found that 49% expect to increase capex in the
next six months, while 45% expect capex to be flat. Thus, it is possible that
economic growth, including earnings growth for techs, could rebound in the
second half, pulling investors from their apathy. In other studies,
Morningstar found that talk that the Nasdaq is overvalued may be somewhat
exaggerated. On the one hand, the aggregate P/E ratio of the Nasdaq 100
suggests the Index, especially tech stocks, is dramatically overvalued,
sometimes by up to 60% depending on the analyst's evaluation. Using other
traditional valuation metrics such as price/book or price/cash flow also
produces a bearish picture. On the other hand, when Morningstar looked at the
stocks on an individual, instead of an aggregate basis, comparing price and
fair value, the Index is only about 5% overvalued, and there is a lot of
variation within the Index. The top 10 weighted stocks in the Nasdaq 100,
including bellwethers Microsoft, Intel, Cisco Systems and Qualcomm, are about
3% overvalued. This compares with the next 10 stocks in terms of weighing,
where overvaluation reaches 14%. Thus, while this may not be a good time to
buy the top 10 weighted stocks, it is not a great time to sell them either,
and shorting them does not sound like a great strategy given that a lot of
other individual stocks are overvalued by far more than the aggregate index,
concluded the research firm. In sum, it is a matter of which lens you use to
look at the sector.
High-Tech Monday Update is provided courtesy of Thomson Financial. This
information is believed to be true and accurate; we take no responsibility for
inaccurate information and reserve the right to update our reports. For more
information, please visit our web site at http://www.thomson.com/financial.
SOURCE Thomson Financial Market Commentary
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