After almost a year of giving thumbs down on almost any high-technology stock, some market-watchers are now surprisingly, but selectively, upbeat. ``Paine Webber is bullish on the market and more bullish on the technology group for the quality stocks,'' says Stephen Smith, an industry analyst with Paine, Webber, Jackson & Curtis in New York. ``The multiples on some of these stocks are so low now that there are some real values.''
But younger companies, even those with outstanding products, face a tougher road. ``The name of the game has changed in many ways,'' Mr. Smith says. ``It's not so much product differentiation by making a better mousetrap that's important as it is superior marketing and distribution. That's an expensive game to get into and therefore one that favors the large corporations.
``We believe that the best overall risk/reward is in the blue-chip stocks like IBM and Digital Equipment Corporation [DEC], those with strong product cycles in an expanding economy,'' he says.
Smith's top pick is DEC. ``The company is entering a very strong new product cycle with the economy going strongly. It has invested heavily in people over the last two years. While that will put pressure on earnings, short term, it is very important to have good distribution. DEC has built good direct sales.'' He notes that a new DEC a super-mini computer, the Venus, already sold out for '85.
But a blue chip is not a sure thing. Thomas Bailey, fund manager and president of Janus Capital, is avoiding the bluest of all, IBM, because most analysts and money managers (``everyone from the bank president in Big Thicket, Texas, to pension and aggressive funds'') have favored the stock. That worries him. He thinks an earnings increase in just single digits is likely.
IBM is planning a new computer introduction, ``and every time they've done that there have been glitches,'' Bailey says. If that happens this time, he'll look for price weakness.