By Guy Halverson, writer of The Christian Science Monitor
The Christian Science Monitor
TECHIES, beware. "High-tech" mania is running into static.
Last week, a number of high-technology companies saw their share values plummet, as investors scrambled to shift their dollars elsewhere. During the middle of the week, the Nasdaq Composite Index, which includes many high-tech stocks, was pummeled by sell-offs of such stocks. Yet, "high tech has been a primary driving factor in the stock market this year," says Larry Wachtel, a vice president at Prudential Securities Inc.
There are now two major questions involving high-tech companies, analysts say.
*Will weaknesses in the high-technology sector push the United States stock market into a correction? Probably not, Mr. Wachtel says. Investors are instead "turning to defensive stocks, such as consumer companies and pharmaceutical firms."
*Is there room for additional weakness in high-technology issues? "Yes," Mr. Wachtel says, although "some selected high-technology companies may still be profitable in the months ahead." The trick is to identify those firms.
For Wall Street, the issue is hardly moot. During 1995, investors have poured between $4 billion and $5 billion into high-tech mutual funds alone. The top performing US mutual fund for much of the year has been the Fidelity Select Electronics Fund. Other hot funds include the Seligman Communications & Information Fund and the T. Rowe Price Science & Technology Fund. The technology sector includes more than 1,000 publicly traded companies. And more than 100 high-tech firms start up each month.
Moreover, investment houses and financial firms, enamored by the high-tech market, have been bringing unique new services to market. In just the past few weeks, for example, the American Stock Exchange has begun trading stock options on the latest industry stock index: The Morgan Stanley High-Technology 35 Index.
Technology stocks are not cheap. According to Kathleen Hartman, an analyst with Morningstar Inc., a Chicago-based financial services firm, price-to-earnings ratios are averaging just slightly less than 30 for stocks in speciality high-tech funds, compared with an average P/E multiple of around 16 for the Standard & Poor's 500 stock index. …