Internet Investors Can Learn from Lessons of Early ’90s - 2
By Saghir Aslam
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
Knowing this also will help when it comes to investing in the Internet. Future online growth is all but a given. But will today’s big Internet names become the great stocks of the next millennium? Or will they come from companies in various industries that are already highly profitable and stand to grow further thanks to a Webbed world?
Investing pros pick the latter. They believe companies that have shown solid, or even accelerating, earnings growth and are leaders in their field are most likely to see the biggest stock gains over the long term. One way to find and track such stocks is by checking their Earnings Per Share (EPS) and Relative Strength (RS) ratings.
Again, consider Cisco. At the end of 1990, Cisco had an EPS of 99 and an RS of 98. This means its earning growth was superior to 99% of all publicly traded companies. It shares in the prior 12 months grew faster than 98 out of every 100 stocks. Cisco was a leader before it commenced its massive ascent.
The rise of online commerce has given the Internet the appearance of a completely new industry. In some respects, that’s true. Firms such as Amazon.com and Ebay have added new ways to connect people with information, goods and services that are here to stay. But some say that in the long run, stocks of Internet “pure plays” will generally fall behind those companies with superior profitability.
Ultimately, I think the Internet will be looked upon as another communications system, somewhat like telephone lines and electricity. Electricity flows from one spot to the other and people don’t think about electricity. They think about the appliances at either end of the system. And the money is made by people who are providing equipment, consumer items and so on to use electricity.
Nine tech firms that should grow in tandem with the Internet include chipmaker Intel, software developer Microsoft, computer makers IBM and Dell Computer, telecom gear firm Lucent Technologies and Finnish mobile phone giant Nokia.
These are the ones that we are betting on that are beneficiaries of the Internet. They’re the ones we want to own anyway. These are not the dot.com stocks.
The six firms listed above posted earning growth ranging from 21% (IBM) to 60% (Microsoft) vs. year-ago levels in the most recent quarter. They also carry EPS ratings of 91 or higher.
Many frown about the Internet content and e-commerce firms, though. They wonder how some companies can maintain lofty prices without having the profits to justify them.
When you get to a Pricline.com and walk into that sort of dimension, then there are just as many questions as to survivability. It gets to be much, much, much, much more risky and that’s not for most investors in my view.
Analysts expect Priceline.com, a Web site that allows uses to bid their own prices for hotel and airline fares, to post a net loss of 42 cents a share this years and a loss of 24 cents the next.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)