Ever get the feeling tech stocks are a mystery only Wall Street can solve? We’ve all heard over and over how the Internet was booming, how businesses were upgrading their computers and how telecommunications were whisking us all into a new era. But no sooner did tech shares climb than Asia’s economic crises whacked computer, semiconductor and software shares alike.
Time to bag tech altogether? No, says Patrick A. Lyons, a research analyst for NCM Capital Management, a subsidiary of the Sloan Financial Group in Durham, North Carolina. NCM has $4 billion in assets under management. In fact, Lyons feels some tech shares have fallen so much, they’re virtually on sale. “I think the market really overreacted to news of currency troubles in Southeast Asia,” reasons Lyons. “The fact is, that while companies like Compaq or Dell have manufacturing facilities in the region, Southeast Asia doesn’t provide much more than a small percentage of their sales.”
Lyons, 25, is the office expert on gadgets, programs and the like for good reason. While he keeps a relatively low-tech profile–his office PC is a Compaq Deskpro, nothing really out of the ordinary–Lyons caught the digital bug early on when the school system in his native Jacksonville, Florida, started exposing sixth graders to the rudiments of programming. In college, Lyons, a math major, enrolled in his share of programming courses. Now four years later, though, he’ll tell you that tech stocks, underneath all the microchips and wiring trade like growth shares. So first off, he’s on the prowl for companies with projected earnings growth rates that exceed their current price-to-earnings ratio (PIE), a rule of thumb used by growth managers from coast to coast. Next, he’s looking for companies that rank either No. 1 or No. 2 in their respective industries. “You find that the leaders enjoy a certain amount of pricing power,” he says.
Still, according to Lyons, it helps to scout out which sectors are primed for growth and selling at bargain prices. “My favorite group is software,” says the analyst, predicting that earnings will grow 25% annually for the next three to five years. “I think a lot of companies haven’t addressed the year 2000 problem, and that’s something that should boost revenues beginning this year.” Another factor to keep in mind, says Lyons, is that businesses are still upgrading software after Microsoft’s introduction of Windows 95, and should continue to do so every couple of years, whenever it brings out a new operating system.
Lyons also likes the computer hardware sector, makers of PCs and servers–computers that link large networks. “The Internet is becoming more and more popular, with traffic growing at a 50% annual clip,” he says. “That’s helping to drive computer revenues, as well as the fact that PC prices are now coming down below $1,000 a unit.” Then, to sweeten things even more, Europe is still lagging behind the office computerization curve, which should fatten sales on that side of the Atlantic. The three factors combined should propel annual