Is It Cheap YetBy Reuters - | Posted 2008-01-24 Print
The sexiest names in technology have been hit hard in a U.S. stock sell-off, but some investors are already betting on a comeback while others are sticking with the sector but switching to other stocks.
IS IT CHEAP YET?
Stifel Nicolaus analyst Scott Devitt said Apple and Google had become standard-bearers for the sector, making them the last shares vulnerable to a market correction.
The fact they have already lost so much more ground than the wider market "would actually suggest to me we're close to the end of a bottoming out," Devitt said.
Google, trading at 26 times 2008 earnings, is still viewed by many on Wall Street as the best-placed Internet company to ride out a recession, since its paid search listings give advertisers a more efficient way of tracking marketing budgets.
But Standard & Poor's analyst Scott Kessler said the company, which went public in 2004, is too reliant on advertising as its nearly sole source of revenue and is an unknown quantity when it comes to economic woes.
"Google as a public company has never faced an economic slowdown," he said. "As much as they want to talk about how Google is much more akin to a direct sales model ... this can't be good for them in our judgment."
RIM, trading at about 26 times fiscal 2009 earnings, faces concerns similar to Apple's. It is at the start of trying to penetrate a broad consumer market, and the popularity of its BlackBerry email device and phone among business customers could be hit as U.S. companies cut back spending.
But some focus on the fact that the global appetite for advanced phones is expanding, and RIM may be quicker to gain than others.
"There is clearly some risk ... but the growth trajectory will still be one of the best available to investors in the large-cap tech space," said Paul Coster of JP Morgan.
Amazon, still rich at a multiple of 47 times 2008 earnings, may be the most vulnerable of the four and could eventually cede investor attention to online auction site eBay Inc, which has lost 33 percent of its value on growth concerns since reaching a high point of more than $40 in October.
EBay Chief Executive Meg Whitman, who plans to step down in March, has said the company's online auction has been an attraction for bargain-hunting consumers in past downturns.
Bernstein this week upgraded its view of the U.S. retail sector to "overweight," saying a recession's potential effect on consumers had already been priced into these stocks.
"That's a rising tide that will also benefit Amazon and eBay," Lindsay said.
Devitt also has a positive view on eBay, as well as on Liberty Media Corp's Liberty Interactive with a trading multiple at 6 times earnings before interest, taxes, depreciation and amortization (EBITDA), and on IAC/InterActiveCorp at 6.5 times EBITDA.
"These valuations, unless you anticipate earnings are going to fall off a cliff in 2008, are very reasonable," he said.
(Additional reporting by Jennifer Ablan, editing by Gerald E. McCormick)
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