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SmartMoney.com: Investors Taking Back 'Good Will' Extended to Tech Stocks

Aired December 20, 2000 - 2:03 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

LOU WATERS, CNN ANCHOR: As we all know, not very long ago technology stocks were the darling of Wall Street. So what's going on?

For the past six years, Tiernan Ray has followed the technology sector and currently writes a column for SmartMoney.com. He joins us from New York.

You heard Bill Dorman just telling us that the Nasdaq is off 50 percent from its March highs. What's going on with these technology stocks?

TIERNAN RAY, SMARTMONEY.COM: Lots of pain, obviously. People are taking back a lot of the good will that they extended to tech stocks earlier in the year based on unreasonable expectations, perhaps. Now I think they're trying to sort of assess how far do we go before we've reached the fundamentals for some of these companies.

WATERS: Is it just unreasonable expectations or -- some of the folks I talked to said the venture capitalists were making unreasonable assumptions in the beginning that like a dot.com company wasn't losing enough money so it wasn't a big enough idea. It seemed to go against all of the traditional approaches to the economy.

RAY: Well, you know, last year we had an environment in August, a year ago August, where we had companies such as Amazon and Yahoo! that were down 60 percent, 40 percent or more by the end of the summer. And clearly that wiped aside a lot of the business plans that were not really technology, they were based on retail sales, phantom profits that would be generated strictly by the Internet. We're now dealing with an environment where we actually have true tech -- companies like Cisco, Dell and Nokia -- and they're trying to figure out what the fundamentals are for those kinds of business plans.

WATERS: And we should not that Cisco Systems is down 10 percent.

The -- there's no question that technology has been good for business worldwide. Is it a matter of rethinking the technology sector and how it applies, perhaps, to the old economy? Is there too sharp a line between what's being described as the old economy and the new economy?

RAY: Well, again, I think we wiped a lot of that aside when we got rid of, frankly, some of the "me too" companies: the Pets.com and these sorts of companies, Boo.com, that were simply phantom business plans. I don't think there's anything wrong as far as the core technologies assessment of what needs to be built in the economy. The private equity side, the venture capitalists are actually doing a good job of allocating funds there. What has to happen now simply is for the macroenvironment to stabilize, for the Fed to send the right signals to let people to know that they're going to be able to make the real investments they need to make to shore up the telcos, et cetera.

WATERS: So what do you recommend? What are the tech stocks worth getting into?

RAY: Sure. I think some of these are already down quite substantially, and they're interesting to pick up. "Smart Money" magazine recommended -- and I assisted in this -- Nokia and Intel just about a month ago or so. Obviously there's no great bounce in those stocks since then in the upward direction. But we think that both of those are companies that have taken substantial punishment but have fantastic fundamental businesses underlying them in technology. And so those are companies we would be looking to pick up.

WATERS: OK, we're all calling our brokers. Thank you, Tiernan Ray, SmartMoney.com.

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