Some excerpts from BW/AOL chat with S&P tech analyst (AOL keyword BWtalk).
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BusinessWeek Online
Transcript of Oct. 7, 2003, investing chat
TECH STOCKS TO TRY
Thomas W. Smith, group head of the Standard & Poor's analysts covering technology stocks, addressed questions on how S&P sees that investment area now. The chat was co-hosted by BusinessWeek Online and S&P.
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Tom Smith: Our view on the technology sector is positive, and we are overweighting the sector, as we believe the American economy is in the midst of a multiyear turnaround. We think information technology equipment -- both hardware and software -- will grow faster than the overall American economy through 2005. And therefore, we generally see good things ahead. Valuation for tech shares in particular, and the market in general, is always open to a lively debate. However, we feel that generally low interest rates and the prospects of an economic recovery help to justify a generally high valuation level for the market.
Overall, we are bullish on the market. I might note that S&P's investment policy committee, which has a recommended allocation by asset class, is recommending 60% equities, 25% cash, and 15% bonds. As of Oct. 1, the investment policy committee's yearend target for the S&P 500 was 1085.
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Rontan 226: Any pickup in IT spending?
JackBW: I gather you expect it to come -- has it begun?
Tom Smith: My sense is that it's beginning, but has not accelerated in a strong manner so far. As I listen to the semiconductor companies on my beat, one senses that their end markets have been stabilizing for several quarters now and a better-than-seasonal pattern for PC sales appears to be at hand, according to reports from Intel (INTC). However, we look for a more decisive improvement in information technology equipment sales in 2004. Quickly grabbing the S&P Economic Outlook for August -- so I'm maybe a month behind the latest estimate -- our economist, David Wyss, shows real GDP moving from about 2.4% estimated for 2003 to 4.1% estimated for 2004 and 3.9% estimated for 2005.
Now, within that, equipment investment, which is something of a proxy for technology equipment sales, will turn positive in 2003 and grow at 4%, clearly higher than the 2.4% estimated for the economy by Standard & Poor's. And equipment investment is projected to improve to 9.5% in 2004 and grow at 8.7% in 2005. Both of those figures are more than twice as fast as our projection for the overall economic growth for the U.S. economy. I feel good about the prospect for tech spending generally. That said, the pace of tech sales in this upturn is not apt to be as strong as it was in the great heyday of the late 1990s.
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We also have a 5-STAR (buy) recommendation on Intel (INTC), which has delivered consistently strong results for this time in the semiconductor cycle. It seems to be leading the way up for the industry. We think that they have partly made their own luck by focusing on the Centrino technology for wireless notebook computers. The gross margin story has been attractive for Intel, in our view. And we think they should do pretty well as American corporations start to hire again in 2004 and 2005 and have a need to replace PCs that may have been bought back in 1999 for Y2K compliance reasons. The typically useful life for a PC is about three years. So as we begin to move four and five years away from Y2K, we think there will be an interest in upgrading PCs generally, and moving on to wireless notebooks, in particular. There are many other semiconductor companies recommended as 4-STAR accumulates.
AI
