[Deborah Marchini, Cnn Anchor:] Tech stocks managed to follow through on Wednesday's rebound with a 32-point gain, but how long can the rally last?
[David Haffenreffer, Cnn Anchor:] If 32 points is a rally. Technology analyst Jonathan Cohen, of Wit SoundView, joins us now for some insights. And certainly, volatility continues to be the theme here for the Nasdaq. Is that the type of behavior that we can expect to see in the short-term here?
[Jonathan Cohen, Wit Soundview:] I think so. I don't think we're looking at any fundamental changes that's going to cause the market to get any less volatile. This has been an extremely difficult market to call changes in. And we really see that continuing. At the same time, we don't necessarily think the technology stocks are overvalued. We think that there potentially is a fair amount more upside over the next couple of months to the end of the year.
[Marchini:] We've seen some signals the U.S. economy's poised to slow down. The same may be true of economies abroad, most notably in Europe. Does that have much of an impact on the tech sector?
[Cohen:] Well, ultimately it does, absolutely I mean, to the extent that corporate buying is slowing, technology stocks will suffer, technology companies will sell less product. But, at the same time, I think we've really seen a systemic change over the last, let's say, 18 months. Technology buying by large corporations is really seen now as a competitive necessity, whereas before they spent when there was money to spend, now they spend almost regardless just because to not spend on technology is to be at a competitive disadvantage.
[Marchini:] So is the sector almost immune to economic cycles?
[Cohen:] Well, I wouldn't say that. But at the same time, if you're looking for growth in a growthless economy, technology is clearly going to be the place to be. At the same time, to the extent that we see basically an elimination of inflation over some period of time, or a diminishment of inflation worries, growth is going to be worth more that it would in a period of great where there is growth across the economy. So, to that extent, I think that investors are going to continue to be willing to pay a premium for growth stories, and technology is clearly where they're going to be found.
[Haffenreffer:] What are some of the stories? and where do you find them within the tech sector?
[Cohen:] Well, within technology, specifically, we're looking at areas like the software, Internet infrastructure, optical networking equipment, areas where we're looking at very, very big markets, and where there are companies that are enormously well positioned by virtue of their technology position, the strength of their sales force, their ability to continue to deliver price performance increases; those are sort of the key issues.
[Haffenreffer:] We're looking at the names that you like right now. What about FreeMarkets?
[Cohen:] Well, FreeMarkets is interesting because the stock is down dramatically from its high obviously, you can see on the screen but at the same time, the fundamentals look very, very strong, probably stronger than they have at any time in the company's history. We think there's upside to the current quarter, the third- quarter. The whole B2B market space, after suffering a terrible, terrible shakeout, now looks like it's beginning to come back, and a couple companies have really emerged as dominant market leaders in that sector. And FreeMarkets is one of them. They really seem to be in this marketplace, the dominant provider.
[Marchini:] You're also recommending American Online. Does that presuppose that the merger with Time Warner does or does not go through?
[Cohen:] It doesn't presuppose that the merger goes through, but we strongly believe that it will. I mean, there's an article out this morning to the effect that the FCC looks like they're recommending for approval of the transaction. The jury is still out on the FTC. But all in all, we think this is a transaction that's going to through. And more to the point, we think that the transaction at the end of the day is going to result in a company that is very, very well positioned to take advantage of trends like wireless Internet, like the propagation of broadband technology. This is a company that's going own content and distribution to probably a greater extent than any other company in world. We think that's going to be an enormously powerful combination, and the stock at these levels does look attractive.
[Haffenreffer:] All right, Jonathan Cohen, Wit SoundView, thanks for coming in this morning.
[Marchini:] Thanks, indeed.
[Cohen:] Thanks very much.