It’s been a wreck for tech, especially since this April, when the U.S. government’s lawsuit against Microsoft (Nasdaq: MSFT) helped spur a rampant technology sell-off, sending the Nasdaq composite index into bear market territory. The tech-heavy Nasdaq suffered its worst single-day point loss on April 14, falling 355.07 points, or 9.7%, to 3321.71; that fall shook investor confidence in the once-mighty technology sector.
But Ford Foundation senior manager of private equity Kim Lew continues to stand by technology stocks (see “A Stock Market Report Card,” Moneywise, August 1999). The tech sector generally takes a beating during the spring and rebounds in September, Lew says. Adding to the volatile mix, the Federal Reserve recently abandoned raising interest rates gradually, hiking them 0.5% on May 16, and signaled that more hikes were in the offing.
Lew’s five picks increased an average of 24.79%, outperforming the Standard & Poor’s 500-stock index’s return for the same period. Only two stocks posted positive gains. Texas Instruments (NYSE: TXN) surged 145.51%; Intuit (Nasdaq: INTU) climbed 22.82%. Software giant Microsoft led the technology slide, skidding 23.86%, America Online (NYSE: AOL) fell 18.67%, and Lucent Technologies (NYSE: LU) dropped 1.85%.
The Justice Department’s recent call for a breakup of Microsoft has contributed to the sell-off. In spite of these problems, Lew continues to be bullish on the Redmond, Washington, software developer. She says: “When Microsoft breaks up, it changes the dynamics of the business but doesn’t make it bad. In place of one stock, you get the stock of two companies that are going to be strong.”
Only the stock of Dallas-based Texas Instruments climbed into the triple digits. The leading chip maker boasts a diverse product line that helps it fight off broad market volatility, Lew says. Texas Instruments is spending much of its $2.5 billion budget to buy manufacturing equipment to increase production of digital signal processors and mixed-signal analog chips. DSPs are used in personal computers, mobile phones, and other devices to convert audio and video information into digital signals.
She still likes Lucent, in spite of a dramatic drop in its price since January. Murray Hill, New Jersey-based Lucent disclosed a decline in first-quarter revenue. The company rebounded in April after reporting second-quarter net income of 23 cents a share, compared with 17 cents a share a year earlier. The earnings beat First Call’s expectations of 22 cents a share. Lew, who stopped picking stocks in December after assuming her new position at the Ford Foundation, would have bought Lucent in January when the stock dropped sharply.
Of all the stocks, the only one Lew would have sold is Dulles, Virginia-based AOL, which is currently involved in a merger with Time Warner (NYSE: TWX). Lew says America Online has an Internet valuation, and its merger with Time Warner means the combined company will have a lower media valuation.