Rajan: 'Tech Stocks Will Come Back'
DEBORAH MARCHINI, CNN ANCHOR: Well, it doesn't matter whether there's plus signs or minus signs ahead of most of those numbers, because our guest this morning still feels pretty bullish about the market.</s>DAVID HAFFENREFFER, CNN ANCHOR: Ash Rajan, senior vice president at Prudential Securities, joins us now with his market outlook and some stock picks for this Monday morning. How are you?</s>MARCHINI: Good morning to you.</s>ASH RAJAN, PRUDENTIAL SECURITIES: Fine, thank you, good morning.</s>HAFFENREFFER: Really, volatility was the key last week as well that we had that stronger than expected, for the most part, report out on Friday. People have been bandying about the 25 or 50-basis-point increase that the Fed is expected to be doing coming up a little bit later on this month. Where do you stand, and what is the impact here on the markets for interest rates?</s>RAJAN: David, I'm very encouraged by the type of rallies we saw, the quality of the rallies. It's a little better than what we anticipated. In other words, they stuck at 4:00 p.m., the breadth is a little better -- it's not as narrow as it was. However, we have sort of discovered the fact that we have a 50-basis-point increase May 16, perhaps further increases down the road, on the year. So my point here, as you debate between terrific earnings first- quarter, great guidelines for earnings second-quarter, and perhaps even third, great second half, in terms of technology deployment. So that's the reason we have the volatility. You have very great points, and you have not so great points about the market.</s>MARCHINI: It's not going to be a great second half, Ash, if the Fed has anything to say about it. Not that they're out to kill the party, but they sure just want to squeeze down the economy a little bit.</s>RAJAN: And they're doing very well; it looks like the Fed's going to win this war. But you can come back and say, a good economy actually has good things going for you, if your a telecom, technology, e-commerce investor. Why? Because if you have a strong U.S. economy followed closely by a strong European and Asian economy, it only means one thing: Technology budgets go up. That means better revenues, better visibility.</s>MARCHINI: I thought conventional companies cut spending on capital investment when their sales softened. Why will they buy more technology rather than less?</s>RAJAN: Think about it. It's the nature of the times. Even the poorer countries, even if they can't afford the core infrastructure investments, technology and telecom they're not prepared to wash their hands of. As we speak, 1 1/2 billion Chinese people are waking up there wanting telephone infrastructure. They don't have it. But they're hungry, and they're signing contracts with Nokia, Ericsson, Motorola as we speak. So I'm convinced tech budgets will still be on the rise. Just think about this: We spent billions of dollars on Y2K remediation, and that was a defensive project. Now, we're talking about offensive infrastructures. So I think techs -- tech stocks will come back.</s>HAFFENREFFER: You talk about the jitters, or rather the battle between interest-rate jitters, and the strong earnings that we saw in the first-quarter. Didn't Wall Street sort of ignore the strong earnings anyway and just say it was a very nervous time?</s>RAJAN: Wall Street gets obsessed, David, with any one particular notion -- the one big notion was excesses in valuation; that was the theme for the last three, four weeks as you probably witnessed. So you came up with good numbers, but those good numbers never really benefited those specific companies. Texas Instruments, Intel, Atmel had terrific numbers, but they didn't help those particular stocks, but they helped to band-aid the wounds that we saw in the market overall. They kept reassuring people, look, yes we're having an excessive valuation debate, but fundamentals are still out of sight. And now what's happening in stock selection is investors are coming back once again to good old fundamentals, good old revenues, good old earnings, and that's still owning, that's still buying stock, and that's encouraging.</s>MARCHINI: This week, we're going to be hearing from three companies that represent three key segments, really, of the technology business. We'll hear from Cisco on Tuesday, Applied Materials on Wednesday, and Dell on Thursday. What are your expectations generally?</s>RAJAN: Very strong numbers in all three companies. They are core platforms of the technology sector and the market for that matter. Cisco also represents the whole Internet protocol, Internet infrastructure area. Applied Material would be white hot only because semiconductor book-to-bill ratios have been so strong. And there's this transition of semiconductor chips, not just being PC-dependent, but telecom- dependent or wireless-dependent. So Applied will have a good number. And suddenly, Dell -- one would imagine that the whole PC-centric world is gone and dead and behind us, but we saw a fairly decent number with Compaq and the Gateway, so you're going to see some pretty decent numbers with Dell as well.</s>HAFFENREFFER: I noticed on your stock picks list for us this morning, Target is in there. Obviously, you have continued faith in the U.S. consumer. Why? and what are you're other picks?</s>RAJAN: Yes. If you're looking beyond tech and telecom, which is hard to do sometimes if you're as focused as I am in that two sectors, but if you're looking at energy and retail are the two other areas that I like to be in in my portfolio analysis, and certainly retail, yes, I look for strong consumer behavior. But Target is also specifically a good story. They're streamlining their operations. They seem to be perfectly a good fit to the demographics. That brought some very upscale consumers can sometimes step into a Target and that's very encouraging. That's the reason I have Target as one of my picks, and so does Halliburton on the energy side.</s>HAFFENREFFER: All right, Ash Rajan, Prudential Securities, thanks for being here this morning.</s>RAJAN: You're welcome. Thank you David.