[Deborah Marchini, Cnn Anchor:] Bad news at Microsoft helped pull down the Nasdaq, the index now just 161 points above its lowest close of the year.
[David Haffenreffer, Cnn Anchor:] Courtney Smith, president and chief investment officer of the company that bears his name, is here with his Wall Street forecast. Good morning.
[Courtney Smith, Courtney Smith & Company:] I was named after the company by the way, just joking.
[Haffenreffer:] Microsoft shares really took it in the chops yesterday, down more than 12 points on the day, it is now just above its 52-week low, cheap enough to buy?
[Smith:] No, no, I'm not a big fan of owning Microsoft, and in fact I doubt I am going to own this company for years, and there's really a couple of major reasons. First of all, this is the company that has basically is going to be the Philip Morris of the next 10 years. This is a company that is now being beset by legal problems from the Department of Justice and 19 states. This has really opened the door that everybody can now sue them, you've got the rest of the states, you're going to have their competitors suing them, you're going to have foreign governments suing them, you're going to see class-action lawsuits, and as far as I'm concerned, why do I want to own a company, although it is a great company, that has such litigation risk? It's just too difficult, too risky for too little reward. The second problem is that they're being attacked from all angles. You know, we may be able to start using cell phones and personal digital assistants and cable modems and all kinds of ways to be able to access the productivity tools we need in our business through Linux, cable modems, whatever, we don't necessarily need to have a Microsoft products to do that. So they're being they are having to fight a war on multiple fronts, and it's very difficult to win that kind of a battle.
[Marchini:] You think they're going to be so hamstrung in their basic business that makers of other operating systems like Linux, and those who basically help distribute it, like RedHat will prosper?
[Smith:] Yes, I do. Not that I want to buy Red Hat.
[Marchini:] Oh, why not?
[Smith:] Well, I don't think the Linux companies I think there is a little smoke and mirrors there in a way too, these are help desks masquerading as companies, so I'm not convinced that's the greatest, you know, business model either. I mean, I think they are a little overvalued as well. But the point is that you've got a company that is being attacked from all fronts, and it is very difficult to win in that environment.
[Haffenreffer:] Four point four decline yesterday for the Nasdaq composite, Microsoft getting some of the blame, I guess, for sparking it, much of a surprise in that decline?
[Smith:] The surprise was obviously the size of the decline is always a surprise, but I had been bearish going into the day. I'm actually bullish coming into today, I think we'll probably see an up session in the market over the next several days. And we're starting to put in a bottom I think in the Nasdaq, but it's not quite there yet, we're going to probably stagger around and see some volatility over the next week or so.
[Haffenreffer:] All right, what's the reason that you say we're about to call a bottom in tech stocks?
[Smith:] Because the biggest cure for a bear market is a bear market, and that is to say that one of the key reasons why we saw the Nasdaq hit so hard was that there was $25 billion worth of stocks sold by insiders, mainly tech stocks, mainly stock coming out of lock up from IPOs a year ago. Twenty-five billion dollars of new supply? Hey, this is a market based on supply and demand, there was an incredible amount of supply coming out. Once you have lower prices, that supply doesn't come out anymore.
[Marchini:] All right, but the anecdotal evidence suggests individual investors are not buying on the dips.
[Smith:] Absolutely right, but if I can get rid of $25 billion worth of supply, it doesn't take a lot of buying to start to move the market up, but that's going to take a few weeks, we need to get a little confidence back in the market that this isn't going to be a 1987 washout, or a 1973-74, you know, bear market for people to start to say: Hey, wait a minute, OK, this is pretty cheap stock, maybe I'll buy Microsoft or, you know, VA Linux or whatever, you know, but they'll start to come in and buy some of the names that have been premiere names over the last year or so.
[Haffenreffer:] If we believe that the Nasdaq has just about found a bottom, what are your favorite technology stocks to be getting into?
[Smith:] You know, I think that you've got to stay away from the big bellwethers right now.
[Haffenreffer:] Stay away from them?
[Smith:] Stay away from them for this reason, most of them are overvalued, that's why we had the Nasdaq down as much as we had, we ran them up too far last year, now we've got to build some value back. But you can buy companies like Helix Technology, this is a company with 90-percent market share, it has a 50 PE, OK, which is still not exactly a cheap stock, but it's growing earnings at over 100 percent a year. So I would argue that is a much better buy than, say, a Cisco or an Intel or a Lucent or Microsoft.
[Marchini:] On your list of picks there I see General Motors, that's not a tech company, is it?
[Smith:] Ah ha, I'm working on a whole theory of companies of what I'm calling transformers, and these are companies that are being transformed by the Internet, yet are not considered dot.com companies. General Motors, for example, came out and they have moved all their procurement on-line. They have come out and said: That is going to save us five percent of our cost structure. Now, that doesn't sound like a lot. But there is two things to remember: That is five percent of $138 billion that they are going to be saving, and that translates into $3.20 a share. Now stop and think about that. Here's a company that right now Wall Street is saying is going to earn $9.20 a share, and I'm saying there's another $3.20 a share that Wall Street isn't factoring in because of the Internet. This is a company that may, you know, obviously the economy I think is going to be a little bit slow, so that's not going to help the earnings, but the fact is is that the Internet is transforming General Motors in a very positive way. And I don't think Wall Street is factoring that in. So that's why I'm over in General Motors, it's a dot.com stock without people knowing it.
[Haffenreffer:] Stealth dot.com. SMITH; Exactly right. Courtney Smith, thanks for coming in this morning.
[Smith:] My pleasure.