It's probably the most controversial investment question among the Wall Street pros: Has the technology craze had it?
About 10 days ago, Morgan Stanley and Co., one of the Street's most prestigious investment names, sent the hot technology stocks in a tailspin when it chopped its earnings forecast on a slew of technology-oriented companies because of the slowing business environment.
Coming as it did on the heels of disappointing earnings news from two of the leading lights in technology -- Data General and Tektronix -- it provided fresh ammunition to the growing chorus of critics who argue that the technology play has run its course.
But days later, the group -- led by National Semiconductor, Digital Equipment and Texas Instruments -- bounded ahead in a sharply rising market. The death reports, it turned out, were grossly exaggerated.
But the controversy lingers. And this was expecially evident last week in San Francisco, where some 350 leading money mangers from the United States and abroad gathered for the 10th annual investment conference of fast-growing Montgomery Securities. In the corridors of the Stanford Court Hotel, the site of the convention, the question of what to do about technology became a broken record.
A typical view was voiced by Paul Weissguhler, head of investment research for the Guyerzeller Zurmont Bank, a Zurich-based money management company with nearly $2 billion in assets. "We're going along with the companies for now, but we're concerned about some prices that seem very exaggerated," he said.
One can easily understand his concern. Stocks don't go up forever, and over the last couple of months, the technology stocks, as a group, have shot up a hefty 35 percent to 40 percent. The gains over the past year are even more dramatic -- with such companies as Cray Research, National Semiconductor, Intel and Advanced Micro Devices climbing anywhere from 65 percent to 200 percent in market value.
While some pros are clearly perplexed about what to do, Jim Berdell is not. He's Montgomery Securities' well-regarded technology analyst. And the 36-year-old Berdell -- who carries plenty of clout with the institutional fraternity -- insisted in an interview that the play in technology is far from over. "My head is not in the clouds," says Berdell (who bought a home last week in the outskirts of San Francisco for more than $600,000). "Sure, there will be an industry slowdown and '81 earnings will be affected. But I'm not looking for a down year for the industry [which some other analysts think is possible], and if the earnings don't collapse, these are cheap stocks."
Accordingly, Berdell -- in a bold stand that will see him wind up as either a hero or a bum -- is urging the institutional biggies to take and maintain hefty stock positions in a trio of industry giants: National Semiconductor, Digital Equipment and Texas Instruments.
You can buy these stocks at 12 or 13 times estimated '81 earnings, says Berdell. He views such purchases as a "gift" because of his belief that the potential earnings power coming out of the recession -- embracing semiconductors, mini-computers and telecommunications -- will be translated into fat gains of 30 percent to 50 percent in 1982.
Breaking down some of the earnings numbers on a calendar-year basis, here's what Berdel is predicting:
Texas Instruments: $14 a share for all of '82, up from $10 in '81.
Digital Equipment: $10 a share in '82 versus an expected $7 in '81.
Nation Semiconductor: $6 in '82, up from an estimated $4 in '81.
Based on these rosy numbers -- plus montgomery's investment view that we're in a strong bull market -- Berdell says it's reasonable to believe that the price-earnings multiples of his three technology favorites can expand to the 15-to-20 range over the next 12 months.
Translate these numbers into stock prices and the bullish Berdell is suggesting a possible explosion. For example, he thinks that Texas Instruments over the next year can sell around $200 (at press time the stock was around $135.50). He believes Digital Equipment, under his scenario, can rise $150 to $200 (it's now around $88.75). And National Semiconductor -- currently trading around the $40 level -- is seen as having the potential to climb $60 to $90.
Berdell points out that at today's stock prices, the market is valuing the earnings of the biggest names in technology at 50 percent to 100 percent below the price-earnings multiples of the smaller technology companies, even though the earnings of the larger ones will hold up considerably better in a business slowdown.
"On that basis alone," says Berdell, "these stocks are cheap."
Clearly, Berdell is sticking his neck out. But that's not new. He's done that in the past, and the record shows he's a winner most of the time. Last year, for example, when most technology analysts were hoisting warning flags because of the prospects of a recession, Berdell talked to the major customers of the technology companies and found that orders were much stronger than expected. And he came out looking terrific as he aggressively recommended the technology sector.
His critics will note that Berdell made a major blunder when he recommended Memorex at 40 and it subsequently fell to 6; he also told people to sell Tandem Computer at $18 "because it was overpriced." The stock eventually went to $50.
Berdell acknowledges his goofs and also makes a point of noting that if Montgomery is wrong about its bullish assessment of the market, his technology favorites will fall short of their goals. But for now, he says, "you've got to be positive on the group."
Berdell, by the way, also believes there are big bucks to be made in such other technology plays as Mohawk Data Sciences, Cray Research and Data Products, even though these stocks too are up sharply.
On the other hand, he also says certain technology stocks should be shunned because of individual problems. One is Data General because of its lack of management depth as it seeks to move from a relatively small company into a much larger one. Another is Northern Telecommunications.
"This a classic case of traditional telephone company -- it's the largest telephone supplier in Canada -- trying to compete in a rapidly changing electronics business where it lacks experience," says Berdell.
He's also a bear on Amdahl -- which recently has been gaining renewed Wall Street support -- because of his strong belief that Wall Street is going way overboard on the prospects of a new computer series which could wind up a dud.