HI-TECH FALL 1999

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The closer we approach the Jupiter/Saturn conjunction in May 2000, the more stock valuations will approach common sense and value. Software companies such as Microsoft are indeed the future. But going back to the future, let us remember the story of Rockefeller Center properties. Arguably  the best property in the world, it was sold to the Japanese for a premium price.  Years later, the Japanese owners sold at for a MASSIVE LOSS. The same fate  may await Microsoft (and many other) technology company shareholders. If the insiders keep telling you their stock is overpriced, is it rational not to listen?

As financial astrologer, it makes cosmic sense for me to agree with Microsoft's President Steven Ballmer that technology stocks are overvalued.

We are in the midst of Saturn (Down) Uranus (Technology) Squares. The first was July 17, timing one correction in Nasdaq. The second is November 14 and lies after the annual October scare and before timing the well known "RUN FOR THE EXIT" ahead of Y2K fears.

If you want to hold technology stock past New Year's Eve, look to companies that will largely avoid the Y2K scare, or may benefit from it.  Ideally cash rich, not stock rich companies- they will grab up weak competitors.

On Wall Street, the pendulum of investor sentiment historically swings from greed to fear and back again.  These days, instead of being measured in months and years, the swings are measured in days and weeks.  Despite falling from Springs highs (to be seen again in 2002 or 2008?), greed continues to rule the day for internet stocks.

Internut warning: IT IS FAR LATER THAN YOU THINK! As we have written many times:
"BIGGEST LOSERS will be the INTERNET STOCKS twinly afflicted by Saturn/Uranus and Y2K by the second half of  the year.  Expect a minimum of 50%+ losses for many of these "tulip" companies. Years ago, as a computer analyst, I wondered how Internet companies would eventually make money - what mix of advertising, subscription and/or e-commerce models.  The right answer was none of the above - but to sell stock to the public or be acquired by an old-line media company!"

Since the above was written last December, the Internet index has clearly peaked. Our basic forecast:  Bubble or "Internet" plays can expect at least 68% correction from 1999 highs as they are truly the junk bonds of the 1990's.  Having appreciated 5 to 10 times in 1998 and 1999, it is logical to assume the possibility of a correction. Despite falling from Spring highs (to be seen again in 2002 or 2008?), insane greed continues to rule the day for Internet stocks. Between now and November's Saturn square Uranus, stocks such as Yahoo should retreat far more than 25%. 50%+ would be no surprise before year end.

When do we changing our tune and become buyers?
Of the big four Blue Chips [YHOO, AOL, AMZN and EBAY], we MAY stop selling rallies on Yahoo as soon as it DROP below 60.  AOL? We have our BUY orders ready for 17!  Neither AMZN or EBAY are buys this year or next, in our view, from ANY PRICE.

Still there are four Internet stocks we look to BUY on weakness. These are:

• Verio (VRIO)
• Star Media (STRM)
• Dutch Equant (ENT) and
• Canadian favorite Stox.com (V.URL)

Divide Technology companies into 3 categories:

1:  The Best- Buy these near 52 week lows  e.g HWP, MOT, SUNW and IBM.
2.  The Good- Buy near or below 104 week lows e.g. Compaq (CPQ), Novell (NOVL)  and Baan (BAANF) and
3. The Rest-  Buy near 90% correction from 52 week highs.

In no case, buy for higher than business valuation if investing for the long term.  You can find a value pricing model at the Morningstar web site.

COMPUTER HARDWARE COMPANIES

Note: The recent Taiwan earthquake was another negative for the sector.

COMPUTER SOFTWARE

Corel (C0RL)
Intuit (INTU),
Novell (NOVL)
Oracle, (ORCL)

From Out perform to Market perform:

Motorola (MOT)
Hewlett Packard (HWP)
IBM

Previously we recommended buying Motorola (MOT), Hewlett Packard and the 2000 Portfolio Star IBM.  But all three are now too rich and we now are writing covered calls on them and have downgraded them to "market performs".

TECHNOLOGY FAVORITES

From MUCH lower prices, we plan to eventually to add to our six core Technology holdings. These technology favorites are recommended for gradual accumulation AFTER the Fall, or if your mandate MUST invest:

Hewlett Packard (HWP)
Lucent (LU)
Motorola (MOT)
International Business Machines (IBM)
Sun (SUNW)
Sony (SNE)

If want to buy from a larger universe, include the Canadian Star: ATI Technologies (ATYT), Dow component Hewlett Packard (HWP), SCI Systems (SCI) and Intel (INTC).