by Jeff Reeves | March 22, 2012 6:00 am
The technology-focused Nasdaq index is well above 3,000 and is at levels not seen since the tech bubble days of the year 2000. As a result, some of the tech sector’s biggest names are flying high — including innovative icons like Apple (NASDAQ:AAPL) as well as the maligned members of the dot-com club that have become stodgy old corporations to many investors.
So is this another tech bubble? Which stocks will crash hard, and which ones will continue to rise to new heights?
There undoubtedly is some froth in the market with the breakneck run since Thanksgiving. The Nasdaq is up about 20% in just 90 days, with some big tech stocks — including Apple — doing even better. But there is reason to think that for some of these investments, the profits are going to stick.
Here are seven tech stocks that are near, at or above their 2000 valuations — and most importantly, a forecast on whether they will stay there:
Don’t be fooled by the fact that shares of Amazon (NASDAQ:AMZN) have more than doubled since the dot-com days. It has flopped in the short term, from almost $250 in fall 2011 to tally a nearly 20% decline in less than six months.
True, Amazon has been a perennial outperformer … but it’s getting squeezed and could be in trouble. Amazon’s net profit is normally about 5% of revenue thanks to rock-bottom pricing, and it’s investing a huge amount of capital in its Kindle Fire. In fact, the company will pretty much break even in its next earnings report because of a tremendous amount of profits being siphoned off for research and subsidies of the Kindle tablet.
So while Amazon might be above its dot-com valuation, there are hints that its upward momentum is waning.
Making your money back about 17 times over is obviously much better than break-even. And it’s obvious to most that Apple (NASDAQ:AAPL) has more room to run. A few reasons why include:
I said Apple was a bargain at $500, and I still think it’s a pretty good buy even at $600.
A roughly 40% gain since the dot-com days is no small feat for eBay (NASDAQ:EBAY) … though it’s worth noting the stock remains off significantly from its 2004 peak of almost $60 (adjusted for splits).
So is the stock on the way up or on the way down? Well, what fueled the company’s growth in the early 2000s — a look beyond the online auction space into more mainstream e-commerce, and integration of PayPal after a shrewd 2002 acquisition of the payment processor for $1.5 billion — might fuel future growth. PayPal technology is at the forefront of mobile payment functionality for smartphones, including allowing you to use your PayPal account to buy drinks at the bar!
What’s more, the company is riding 10 straight quarters of revenue gains. All that means there’s reason to think that eBay has more pop left.
Priceline (NASDAQ:PCLN) stock was pricey 12 years ago at nearly $500 a share, but it still has managed to tally continued gains. This despite a down economy that has sapped tourism spending — and, of course, the fact that its iconic pitchman William Shatner recently got the axe.
So will the steady upward march of Priceline continue from here? Chances are it will. You see, the cut in consumer spending actually has benefited Priceline because of its positioning as a discount travel provider. Though fewer hotels and flights are booked, the desire for better deals has made PCLN a vendor of choice.
What’s more, Priceline is booming because of its growth plans abroad. The most recent Priceline earnings show significant growth in Europe and emerging markets — adding more revenue and profits to the balance sheet.
In short, PCLN stock shouldn’t be making a landing anytime soon.
Qualcomm (NASDAQ:QCOM) is perhaps the most interesting tech stock story of this group. Founded in 1985, it muddled through the 1990s and then exploded during the dot-com days — reaching a split-adjusted price of almost $90 in 1999. It then suffered a gut-wrenching ride down to a mere $15 per share in the next three years.
In the mid-2000s, however, Qualcomm was back in fashion as the cellphone became ubiquitous worldwide and the company got some of its swagger back. However, the rise of the smartphone was starting to make some feel like QCOM was a tech dinosaur.
Now, Qualcomm has forged a highly lucrative contract with Apple for the use of its proprietary CDMS mobile technology in the iconic iPhone. That has taken the stock from dead money back into growth mode — with AAPL a large driver of the nearly 40% revenue growth Qualcomm saw from fiscal 2010 to 2011.
Will this recent momentum last for Qualcomm? Seems like it could. And the fact that this company is worth $100 billion and sitting on an $11.5 billion pile of cash should provide some peace of mind.
SAP AG (NYSE:SAP) is a strange entry on this list. It isn’t a Nasdaq-listed stock. It’s not a Silicon Valley stock (instead headquartered in Germany). It also is not your typical gadget-oriented or consumer-focused tech stock like others on this list.
But when it comes to tech success stories of the past 10 years, this company is a big one. SAP makes its money helping companies manage their human resources and customer relationships — and as technology has boosted business productivity, SAP has been at the forefront of the digital revolution.
The question going forward, however, is whether SAP has what it takes to evolve and thrive in the next era of digital business solutions. Companies like Salesforce.com (NYSE:CRM) have ramped up competition via “cloud computing” options for businesses, and enterprise software is a sticky business to be in when corporations are reluctant to make big capital expenses in a shaky economic environment.
However, SAP seems to be revved up and ready for the future. The stock is up 40% in the past six months, and the company has logged eight straight quarters of year-over-year revenue gains. SAP is at a new 52-week high and has a chance of setting a new all-time high if this keeps up — topping even those bubblicious valuations of the dot-com days.
Taiwan Semiconductor (NYSE:TSM) is the world’s largest dedicated independent semiconductor foundry. It is in many ways more of a manufacturer than a tech stock, since this company essentially is the parts supplier to many electronics companies, and the means of production for companies like Apple that come up with great ideas and just need someone else to do the dirty work.
But while it’s not very innovative in its own right, thanks to the steady increase of demand for semiconductors worldwide we have seen big growth for TSM in recent years — pushing the stock back up to valuations not seen since early 2000.
So where does Taiwan Semiconductor go from here? That’s much more iffy. It’s true that organic growth exists if the economy continues to mend and technology continues its steady march into all corners of the home and office. However, the bottom line is that TSM is heavily reliant on contracts with third parties that have the flashy gadgets and great ideas. If it’s an iPhone 5 and iPhone 6 supplier in the years ahead? Good news. If it’s left out? Well, investors will be left out, too.
There’s no doubt that shares have momentum right now. But don’t forget that while revenue is tracking $15.8 billion for the current fiscal year, it bottomed out at under $9 billion in fiscal 2009 because of the economic downturn and resulting chip glut. This is very much a cyclical stock, so investors should be wary of buying a top, considering TSM is at a 12-year high.
Note: March 21, 2000, stock prices are adjusted for splits and dividends.
Jeff Reeves is the editor of InvestorPlace.com, and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace?.com or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff did not hold a position in any of the aforementioned stocks.
Source URL: https://investorplace.com/2012/03/7-tech-stocks-challenging-dot-com-highs/
Short URL: http://invstplc.com/1aLDyU4
Copyright ©2017 InvestorPlace Media, LLC. All rights reserved. 700 Indian Springs Drive, Lancaster, PA 17601.