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Tech Stocks: Time For Guts Not Glory

Tuesday 11th July 2000

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BACK IN APRIL the tech stocks had a sharp correction and the market has been nervous ever since. The IPO market in the US has come to an almost complete stop and with interest rates creeping up and signs of a slowdown starting to appear in the US, the outlook for investors in the northern summer isn't that flash.

For the majority of investors it's a time to cash up and hide behind a nice, safe bank deposit. However, it's at times like these when the bargains are at their best and fortunes can be made.

All the New Zealand tech stocks are trading at big discounts to their 2000 highs. Overall, the DF Main-land technology index is down 31% from its high, with the stocks in the index ranging from IT Capital (down 72%) to Scott Technology (down 13%). I'm picking three badly hit tech stocks which could reward investors handsomely over the next 12 months. They are IT Capital, Advantage and Newcall Group.

Hardest hit of all our tech stocks, IT Capital's share price is down 72% from its January high. Investee companies Exo-net and Terabyte are still happy to be on board. IT Capital has also been strengthening its partnerships and alliances and announcing new deals. Its recent investments in Deep Video Imaging and Golden Orb look interesting. It's hard to see why the market has singled IT Capital out for such a drubbing.

Advantage has been trading well and has also been making what DF Mainland considers well-priced acquisitions. Advantage's three separate (but linked) divisions provide cash and earnings, and its investments in operations such as Flying Pig and Supply Net give it upside value to its core e-commerce consulting operations. Advantage is attractively priced at 52% off its high.

Newcall, 53% down from its high, is exploiting the small to medium enterprise (SME) market in New Zealand and will do the same in Singapore. Singapore represents a great growth opportunity with an underdeveloped telecommunications market and an SME market ripe for the picking.

For most investors it's difficult to buy when the markets are weak. The key is finding quality companies at good prices.

bam@dfmainland.co.nz

Disclaimer: DF Mainland has worked as an investment advisor with Advantage Group and IT Capital

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