A stockbroker shares Reagan's high regard for high technology
Both Wall Street and President Reagan love high technology. President Reagan, in his State of the Union message last week, referred to the ''man-made miracles of high technology,'' and added that ''this administration is committed to keeping us the technological leader of the world, now and into the 21st century.''Skip to next paragraph
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Last week it appeared as if Wall Street had begun to discount earnings in the high-technology stocks out to the 21st century. High-tech stocks became the ''leaders,'' and stock prices rose so fast one would think semiconductors were about to replace dollars as the next currency.
On ''OPEC Monday,'' for example, when the Dow Jones industrial average had fallen 30 points by midafternoon, GCA Corporation stock could be bought for $27. 75. By Friday morning it was $33.50. The same was true for Digital Equipment Corporation, which sold as low as $98.37 on Monday but by Friday was $118.50, and Hewlett-Packard, which sold at $72.25 before jumping to $79.75. These spurts came on top of steady gains which have doubled or tripled the prices of almost all high-tech stocks over the past year. As one mutual fund manager noted , semiconductors are ''better than gold.''
To Howard S. Schacter, a senior partner at DQ Securities Company, in New York , this headlong rush is not surprising. He says that ''during a period of low inflation, you want to invest in growth, not assets.'' He believes this is just the beginning of a period of a three- to four-year growth phase for high-technology companies.
''We're going to see a return to price-to-earnings ratios of 20 to 30 times earnings,'' he said.
Before that happens, however, some caution might be in order, says Philip Rauch, vice-president of T. Rowe Price's New Horizon Fund. Mr. Rauch, noting that some of the stocks have tripled in price, said, ''From this point forward we think you will have to be more selective in buying stocks.'' Currently investors are buying the stocks in anticipation of positive earnings in 1983-84. But if those earnings don't materialize, he said, ''there will be some disappointments.''
Over the longer term, he believes the high-tech sector still represents some good values, particularly larger companies.
Even though the stocks have been the high flyers on Wall Street, Mr. Schacter does not believe they've been overbought. If the companies show an annual growth rate of 20 to 30 percent in their earnings, they can justify selling at 20 to 30 times their earnings. Furthermore, in the past they have sold at double their normal growth rate. Now the multiple is only one times their growth rate. ''When you look at other alternatives,'' he adds, ''there aren't many choices. Bonds aren't attractive. So you have to pay up for multiples.''
Such optimism has hit Wall Street before. In 1974, high-tech issues spurted in a similar fashion. They stayed high through 1976 and then slumped in 1977. They recovered in 1979, however, and moved up through the summer of 1980. Then, as the bear market hit all stocks, they thudded and remained as quiet as transistors without electricity.