Betting on a tech rebound

October 4, 2001: 12:04 p.m. ET

The near-term outlook is uncertain. But now is not the time to abandon tech.
By David Futrelle

NEW YORK (Money) - Judging from what I've been hearing lately, there are two burning questions keeping tech investors up at night:

1) Should I abandon tech stocks entirely and put my money in a buried tin can in the back yard?

2) Should I put every extra penny I have into Cisco 'cause it's so cheap?

Notwithstanding cheery comments from Cisco CEO John Chambers on Wednesday (see "Cisco up"), my answer to both questions is "No." But, I gotta say, the second question is much better question than the first.

Now I know I've been going on about the gloomy outlook for tech (see "Tech gloom will continue"). And we may feel the messy aftereffects of Sept. 11 for some time. But that doesn't mean you should abandon tech stocks for the "safety" of bonds and cash.

Act of faith
With tech stocks only a smidgen off their low, low, lows for the year, now is not the time to abandon the sector, and if you're an adventurous soul, you might even consider putting a little extra money into the sector.

How, in this uncertain environment, do you decide which stocks to pick? Ah, there's the rub. Analysts are still in the process of lowering their earnings estimates in the wake of September's tragedy, so there's no easy way to value stocks using traditional metrics like forward P/E ratios. (How can you, with no way of knowing what the E is going to be?)

So unfortunately, you've got to have a little faith here. That's what investors were showing when they sent Cisco (CSCO: up $1.00 to $14.95, Research, Estimates) shares up more than 20 percent on Chambers' Goldman Sachs comments. And when they bid up travel booker Priceline (PCLN: up $0.17 to $4.18, Research, Estimates) more than 9 percent on the news that its bookings in the last week of September were better than its bookings in the previous week. Neither company gave much meaningful data to work with, but investors finally seem willing to give them a little benefit of the doubt.

That makes sense in this uncertain environment. You've got to ignore the day-to-day gyrations of the market -- of which there will be plenty in the near future -- and look out long term, asking yourself which tech companies not only will be able to weather the current downturn but rebound sharply once demand picks up again.

Stocks to consider
I'm still not completely warmed up to Cisco, but at current depressed levels, I think a lot of leading tech companies probably deserve a little faith: Sun Microsystems (SUNW: up $0.55 to $9.55, Research, Estimates) and EMC (EMC: up $1.19 to $13.10, Research, Estimates) are likely to see decent demand for their products when the economy ultimately rebounds.

	TECH STOCKS FOR A REBOUND
		Apple Computer EMC Nokia Oracle Siebel Systems Sun Microsystems

Nokia (NOK: up $0.90 to $16.99, Research, Estimates) ain't going away. Business software stocks like Oracle (ORCL: up $0.72 to $14.38, Research, Estimates), Peoplesoft (PSFT: up $3.25 to $26.93, Research, Estimates) and Siebel Systems (SEBL: up $1.72 to $19.33, Research, Estimates) may have more bad news ahead of them, but they're cheap enough to at least be worth a look (particularly if they give back some of the quick gains they racked up Wednesday).

You might even consider Apple (AAPL: up $1.08 to $16.06, Research, Estimates), currently trading for only a few bucks more per share than the cash on its books. The PC sector is in the doldrums, and Apple's new retail stores are a big gamble, but the company has ironed out most of the kinks in its flashy new operating system, OS X and the company is getting rave reviews for its laptops. (Hey, I like mine.)

No, none of these stocks are safe bets. But at this point, the risk/reward relationship has finally tilted over to the reward side.