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Stay on top of the market with Prudential Securities and Dow Jones. Click on the url below to learn how you can receive a 1-year subscription to The Wall Street Journal or BARRON'S, FREE! http://www.money.com/prudentialsecurities ***************************************************************** SIVY ON STOCKS from money.com November 13, 2000 The tech wreck continues Election chaos and lousy earnings news from companies such as Hewlett-Packard are driving down tech stocks. But don't rush to buy yet. By Michael Sivy There is no constitutional crisis. The presidential election results will probably be sorted out within a week, and certainly long before the electors cast their votes on Dec. 18. Though the outcome of the bitter fight in Florida is anybody's guess -- it largely depends on technical legal issues -- the lawyers I know think the chances of Al Gore getting the count he wants are better than 50 - 50. The electoral chaos is contributing to a decline in the Dow and an even sharper selloff in the Nasdaq, which was down to less than 2,900 at one point on Monday - more than 40 percent off the March high. Also a large factor in the selloff was Hewlett Packard's third-quarter bomb. Although sales were up almost 17 percent from year-earlier levels, earnings came in 20 percent, or 10 cents a share, below analysts' expectations. They attribute the profit shortfall partly to the effects of the weak euro, but mostly to expenses that were much higher than H-P expected. It appears that to reach its ambitious sales goals, the company let costs get out of hand. From a long-term perspective, there doesn't seem to be anything seriously wrong with Hewlett-Packard's business. With more attention to cost control, H-P's sales might grow a little bit slower -- 15 percent annually, say -- but profits would increase just as fast. Trading at $34 a share, less than 17 times earnings for the coming year, a sustainable 15 percent earnings growth rate makes H-P look extremely cheap, and some analysts rate it a value buy. More skeptical analysts, however, think that H-P's decline could continue for a while. And that's my bet as well. The problem is that the tech group as a whole is in a powerful downtrend. In fact, the biggest and best-known tech stocks could be the hardest hit between now and year end. Usually, money managers and mutual fund executives try to finish their tax selling by the end of October. But given the recent uncertainty, portfolio managers may continue to cut back on their big tech positions, hurting even such tech blue-chips as Cisco and Oracle. Tech stocks aren't the only ones with targets painted on them. If Gore does gain the presidency, big drug stocks could react quite negatively. Even though it will be hard for Gore to do much to hurt the industry, given the hostile and divided Congress he would face, the drug stocks have been building in a big Bush-victory premium over the past few weeks -- and the group would therefore be susceptible to a psychologically based selloff. The investment that would likely profit most from a Gore victory is fixed-income. He would face a Republican Congress at least through 2002, and over the next two years the surplus could total more than $500 billion. With a sharply divided government, the vast bulk of this money would go to paying down the national debt, which could be reduced by 10 percent to 15 percent over the two-year period. And even if George W. Bush somehow manages to hang on, the numbers would be similar. Paying down the national debt is wildly bullish for long-term Treasury bonds, and would also help the bonds of government agencies -- like Ginnie Mae -- and blue-chip corporations. A shrinking national debt would likely slow the economy even more -- it's the opposite of deficit spending after all. That could contribute to a negative climate for growth stocks and encourage the Fed to start lowering interest rates at the first opportunity -- probably early next year. The case for conservatism and diversification has never been greater. ### Post your comments on Michael's column at: http://www.money.com/depts/investing/sivy/index.html To subscribe or unsubscribe to Sivy on Stocks, go to: http://www.money.com/email/ Earning Releases and Calls For the latest corporate earnings releases and online conference calls click on: http://money.ccbn.com * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Special Internet Offer!!! Sign up for a RISK-FREE issue of MONEY MAGAZINE at http://www.money.com/subscribe2 Or if you prefer call our toll-free number 1-800-544-4594 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * We may, from time to time, contact you with offers for Time Inc. products and services which we think may be of interest to you. If you would prefer us not to contact you in this manner, AND YOU DID NOT INDICATE THIS PREFERENCE AT THE TIME YOU SIGNED UP for the Sivy on Stocks online newsletter or any other Time Inc. online newsletters, please let us know by sending us an e-mail at <no_solicit@money.com<. Additionally, from time to time we may provide your e-mail address to carefully chosen companies whose offers we think may be of interest to you. 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