The Old Economy Rallies while Technology Sells-Off, But AAPL is up 4%

Value investing is back in vogue, fueled by a backlash of investor disgust for the triple digit P/E ratios that many of the best technology stocks have carried for the last few years. Of course, Appleis stock has already been "revalued". Maybe thatis why AAPL rallied today in a down market ? the stock is now ripe for farsighted value investing.

Itis all about valuations. How much is a stock really worth? Itis a question that hasnit been asked enough in the last few years by over eager investors chasing technology stocks.

Cisco (CSCO) with a P/E ratio of 95 took a 2 5/8 fall to 48 1/16 as brokers realized the stock is over valued.

Appleis stock rallied 3/4 to close at 19 5/16 on volume of 11 million shares.

A Barronis article by Andrew Bary points out that, "Apple is sitting on cash and other short-term investments totaling $4 billion, or $11 a share. The company has $300 million of long-term debt, which is more than offset by its debt and equity investments of $786 million."

Mr. Bary elaborates:

Apple trades for about 15 times projected 2001 profits, not a rock-bottom P/E. But considering that Apple has $11 a share in cash, the effective P/E is much lower. It also trades for less than one times projected annual sales of $7.5-$8 billion.

Appleis revival appears to be over, but the Street is starting to discount its demise. Besides, Appleis obituary has been written quite a few times before. Given its ample cash position, the company seems to have plenty of time once again to get itself back on track and reward its shareholders.

The Nasdaq shed 87 points (2.65%) to close at 3191 on volume of 1.7 billion shares.

The fiber optic and networking stocks continued to suffer this Monday. Some analysts note that Biotech stocks are behaving like the semiconductor stocks did before they began to tank on Labor Day. The biotechs are the last major enclave of technology stocks that havenit taken a big fall, at least since the spring.

The Dow rallied 245 points (2.31%) to close at 10835 on volume of 1.1 billion shares.

The old economy is thriving, cyclical stocks, banks, HMOs, utilities, drugs, beer stocks and transportation stocks all rallied. Dow Jones Transportation Index was up an unusual plus 6% today. Market observers say that the Dowis recent strong performance may indicate investors believe the Federal Reserve has achieved its goal of slowing the economy without causing a recession.

The S&P 500 climbed 19.07 points (1.38%) to close at 1398.

In Apple related businesses: Akamai fell 1 7/16 to x 47 1/4. Adobe succumbed 5 3/16 to 69 5/8. IBM lost 11/16 to 93 dollars.

Appleis competitors: Hewlett Packard climbed 2 3/8 to 45 15/16 after the stock split 2 for 1 this morning.

Compaq gained back 0.30 to 30.25. The PC vendor said it will slow the rate of its venture capital investment because, "Weire now into the reality phase," of the tech stock market, said Michael Capellas, CEO of Compaq. A Bloomberg News article reported, "The planned slowdown follows a decline in the value of Compaqis venture investments. The Houston-based company held $2.4 billion in equity investments as of Sept. 30, compared with $6.6 billion on Dec. 31."

Gateway was higher by 0.30 to 50.59. The cow-box PC vendor unveiled a new all-in-one desktop PC with a flat-panel screen for $1,999. Called Profile 3, the "elegant" PC has no CD-RW option or graphics card, but instead uses the graphic capacities of the Pentium III.

Dell gained 7/8 to 28 13/16, after announcing an original design choice: The Texas-based PC vendor plans a new line of Vader gray desktop PCs.

Shares of Microsoft climbed 1 3/8 to 69 1/16. Speaking about the hacker attack on Redmondis crown jewels, an anonymous Microsoft spokesman told the Wall Street Journal, "We were aware of it immediately when it began. We tracked it in real time, knew what the person was doing."

However, the Journal reported:

Microsoftis latest explanations werenit persuasive to some experts. Bruce Schneier, an executive with Counterpane Internet Security Inc., said that a single hacker who was easily detected shouldnit have necessitated urgent calls to the FBI and a shutdown of all remote access for Microsoftis roughly 39,000 full-time employees world-wide. "If this is true," Mr. Schneier said, "their reaction is completely out of line."

In economic news: Personal income in September grew 1.1%, the fastest monthly rate in 11 months and up from Augustis 0.4% pace. Much of the gain was due to agricultural subsidies. Consumption expenditures grew at a 0.8% rate, thatis higher than Augustis 0.5% rate.

According to the Wall Street Journal, "spending was concentrated on durable goods -- big-ticket items meant to last at least three years -- which increased 1.5%. Spending on nondurables and services saw increases of 0.9% and 0.7%, respectively.

The stronger than expected consumption and income data reveal the economy is cooling slower than some observers had recently feared, leading credence to the view that the economy is heading for a "soft landing" instead of a full blown recession.

For full quotes on all the companies mentioned in this article, we have assembled this set of quotes at Yahoo! for your reference. For other stories regarding Appleis stock activity, visit our updated Apple Stock Watch Special Report.

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