Stockscom Report for Sunday April 9, 2000

Last week's market shakedown has almost certainly put in place an important cycle low. We thought one had already occurred at the end of February, as indeed it seems to have done for the Dow Industrials and for the SP 500. For our purposes, however, we are more concerned with the NASDAQ and the high-tech universe. These stocks are more volatile in both directions. That means that we have much higher long-term expectations for them than we do for stocks like Coca-Cola. The downside is that form time to time we have to live through weeks like last week.

Although the NASDAQ failed to climb back to its previous weekly close, almost all of our recommended stocks were able to do so. The main reason for NASDAQ's failure to make it back to the previous weekly close is, of course, the drubbing given to Microsoft. For the past 18 months we have been very wary of MSFT, seeing much better opportunities elsewhere. We still don't want to own but we no longer are down on it as we were. The recent decline has brought its price closer to what seems reasonable given its likely 30 percent growth rate. The Price/Earnings ratio is still 56 but in all likelihood the premium over its growth rate is justified by the reliability of growth and the underlying strength of the company. Even more important to us is that MSFT has now come down to a long-term support level which we expect to hold.

The point of examining what we think of MSFT is that it is an important indicator of what is likely to happen to other tech stocks. If MSFT merely stabilizes, then the pressure lifts from the sector generally.

In current market conditions we are wary of putting too much money at risk. A weighting of the order of 50 to 75 percent of one's capital available for stocks looks appropriate now. While the risk of buying stocks looks very manageable here, there is definitely quite a lot more risk than there was last October and November. Some of the best stocks are now far above where they were then and are therefore liable to greater downside fluctuations, as we saw last week. So it is likely worth keeping some cash on hand in case some outstanding and irresistible opportunity comes along. It's hard to go for such stocks when you are already overloaded with stocks, especially when some of them are under water and the general market is going though a convulsion like the one last week.

We are particularly impressed by the fact that almost all our stocks are up week on week, despite last week's turbulence. Stocks that gained on the week are almost all an outright strong buy. This includes some of our recommendations that got quite badly beaten up in the past month, including Biomira and Broadvision.

More important, perhaps, is for us to comment on a couple of exceptions. There seems to be a jinx on Novell. Our understanding is that this company has an internet niche that is immensely profitable and that has limitless potential. The stock has often had wonderful chart patterns that have simply aborted, as has occurred yet again recently. We think this stock is eventually a megabagger but it sure gives us a hard time. Why buy more when you can buy Qualcomm or Ciena?

Yahoo! sold off on the week despite reporting better than expected results. By every known valuation criteria of bygone times this stock is amazingly expensive. Not so, however, by modern internet standards. The company is truly profitable and its growth rate appears to be well over 50 percent. There is $1.2 billion in the treasury and the company has the premier search engine franchise worldwide. To us this looks like a stock to buy on any weakness such as we have been seeing recently. In any case, the recent weakness has done no damage to the technical case for the big picture. We find it hard to envision this stock failing to double in the next couple of years and it might do very much better.

You might think Idec has been a bit sick and you would be right. The biotech sector generally took a huge hit. Our understanding is that this company has amongst the biggest, best and strongest research departments in the industry. If the stock fell back because it got too high too soon, then it's almost certainly a buy on weakness, not a sell.

TD Waterhouse zoomed after buy recommendations from industry analysts. Perhaps we should have stuck with our instinct that we don't really like the company or the people that run it. Nevertheless the stock should be all right.

We want to point out yet again what we feel about sector weightings and the so-called reversal from New Economy stocks to Old Economy stocks. It is our strong view that the action will continue to occur in tech stocks that have a sound business plan, that are profitable and which are likely to double and triple over time, whether within one year or five. By contrast, we are very wary of stocks like Proctor and Gamble. You can take just as big a hit in a traditional blue chip as you can in high tech, but without having the upside potential. many Old Economy stocks are still expensive in our view.

Despite the fact that Sony failed to gain on the week, we still regard this as a very strong company and a very strong stock. We love it.

Seagate is a special situation with the reorganization of its holding in Veritas and its overall corporate reorganization. Frankly, we don't understand the deal. Suffice to say that the stock seemed to be severely undervalued when we recommended it. Our understanding in broad terms is that management has been taking steps to have the market recognize a severely undervalued stocks price.

New Recommendations

None.

List of Current Stock Recommendations:

Note that there are several of our current recommendations which might seem to warrant selling on account of the fact that they have fallen hard. Our experience over the past year has been that it generally pays to give a great stock more room to move than many people suggest. We particularly believe that Idec and Sony are outstanding buys on what we believe to have been temporary weakness. Several biotech stocks have come under extreme pressure. Nevertheless, we don't see them going out of business. What we do see is a dynamic sector that has come through a severe thunderstorm, but which is very unlikely to be ending its bull market, let alone starting a bear market.

Action Ratings

The following is the legend for designating immediate action for our stock recommendations. The first is B, meaning the stock is timely to buy but the case for doing so right here is not overwhelming. Either the stock may have got ahead of itself and may be vulnerable to a retracement or else the stock has been performing disappointingly but may simply be regrouping. B+ and B++ indicate stocks for which there is a technical case to buy now, with plusses adding weight according to how many there are, up to a maximum of five. Stocks rated H are ones to hold, awaiting confirmation to buy more or to sell. SELL, of course, means what it says. It seldom pays to override this designation.

Stocks marked # are eligible for Canadian RSP funds. Otherwise there is a 20pc restriction on foreign stocks held in these accounts.

First bought Entry Last

4/3/00 American Power Conversion 43.38 43.56 B++
3/2/00 Applied Micro Circuits(AMCC) 136.75 144.94 B++
3/2/00 Atmel Corp(ATML) 50.31 57.88 B++
3/2/00 Biomira(BIOM) 17.75 10.50 B++
3/2/00 Biovail(BVF) 67.56 52.56 B++
3/2/00 Broadcom(BRCM) 208.50 207.75 B++
3/2/00 Broadvision(BVSN) 85.75 56.06 B++
3/2/00 Ciena(CIEN) 181.50 132.50 B++
3/2/00 Cognos (COGN) 67.09 76.75 B++
3/2/00 Corning(GLW) 200.00 196.00 B++
3/2/00 Fusion Medical(FSON) 17.75 19.75 B++
3/2/00 Genzyme Molecular(GZMO) 29.00 18.94 B++
3/2/00 Idec Pharma(IDPH) 149.88 101.31 B++
3/2/00 LSI Logic(LSI) 69.25 74.94 B++
3/2/00 QLT Therapeutics(QLTI) 73.25 66.50 B++
3/2/00 Rogers Group(RG) 33.75 28.50 H
3/2/00 Royal Phillips(PHG) 200.38 179.75 B++
3/2/00 Seagate(SEG) 51.25 58.50 H
3/2/00 Sony(SNE) 303.00 272.00 B++
3/2/00 TD Waterhouse(TWE) 19.88 18.88 H

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