With markets fluctuating, experts urge careful choices

"This is not the time to be bold or overly speculative," said Brian Sayers, manager of the Dallas office of CIBC Oppenheimer Corp. "There are some sectors to buy right now, but you better know which areas or have someone help you."

The basic problem facing investors is simply this: Do they continue to plow money into the stocks that trade on the Nasdaq stock market - which gained 86 percent last year and is already up 12.5 percent so far this year - or do they return to the more traditional names of the Dow and Standard & Poor's 500 index, which have struggled in 2000 despite Monday's rally?

Compelling arguments can be made for both strategies, but Mr. Sayers believes a better strategy might be a combination of the two. There's money to be made in both the stocks of the Old Economy and the New Economy, he said, but "you have to be very selective."

The Dow, even though it rebounded 176.53 points Monday to close back above 10,000, is still down 12.7 percent for the year - its worst start since 1920. This means there are cheap stocks for the picking, but, Mr. Sayers said, only for those with the courage to buy in the face of what has been a near-bear market.

For example, shares of some well-known banking companies, such as Citigroup Inc. and Bank of America Corp., are down more than 15 percent from their yearly highs. Similarly, Alcoa Inc., one of the old warhorses of the Dow, has dropped recently from $83 a share to its current $71 a share. Perhaps a bargain now, he said.

"I think it may be time to look at some of those stocks," Mr. Sayers said. "That doesn't mean you have to abandon technology. It just means maybe the next dollar you invest goes into some of these other areas."

Put 25% in tech

He and other market experts still encourage investors to have at least 25 percent of their portfolios invested in the technology sector because it has become the driving force in the U.S. economy. Investors apparently have gotten that message all too well. In the week that ended Feb. 23, investors poured $1.6 billion into technology stock funds, $1.2 billion into biotechnology funds and $1 billion into aggressive growth stock funds, according to AMG Data Services in Arcata, Calif.

But at the same time, investors withdrew more money from Standard & Poor's 500 index funds than they put in. Index funds, which are designed to mirror the performance of a stock market index, have been among investors' favorites over the course of the bull market, now heading into its 10th year.

The concern now is that investors will be too narrowly focused on technology stocks and not be diversified enough. But this trend will probably continue, pushing technology stocks ever higher, analysts said.

But despite the Nasdaq's record-setting pace, there are still some bargains in this area, Mr. Sayers said.

As an example, he cited the fact that shares of Selectron Corp., an electronics equipment manufacturer, have dropped from $98 a share to $61. Another is Tellabs Inc., a telecommunications equipment maker, whose shares have dropped from $77 a share to $48.

"These are just good, solid companies that don't have as much downside risk as the general market because they have already had their teeth kicked in," Mr. Sayers said.

'Buy the Dow'

Douglas Raborn, investment manager at Raborn & Co. in Delray Beach, Fla., said he believes the Dow's swoon so far this year has just about run its course, and he is advising his clients to "buy the Dow."

"The safest place to be at the moment is in the Dow," said Mr. Raborn, who manages $100 million for individuals and retirement plans.

He suggested that investors buy "Diamonds," which are similar to a mutual fund in that the money is invested in all 30 stocks of the Dow, but they trade throughout the day like stocks. Diamonds are traded over the American Stock Exchange.

With this type of investment, investors will have exposure to "great companies" such as Microsoft Corp., Intel Corp. and Hewlett-Packard, he said.

"A lot of investors don't understand that the Dow today does have a big technology component," said Mr. Raborn.

Further, he said, even some of the more traditional companies, such as Coca-Cola Co. and Caterpillar Inc., will become "lean and mean" through technology-induced cost-cutting.

Long-term optimism

There doesn't appear to be widespread fear that the Dow's recent downturn signals a sustained bear market. The economy is too robust, unemployment too low and investor confidence too high. A recent survey by PaineWebber Inc. and the Gallup Organization showed that 78 percent of investors say now is a good time to invest in the markets.

Investors who responded to the poll, which was taken Feb. 2, just after the Federal Reserve raised short-term interest rates by 0.25 percent, said they expect returns of 16.7 percent in the next 12 months.

"Investors remain confident in the market's ability to deliver above-average results," said Mark Suton, president of PaineWebber's private client group.

The survey of 1,004 investors nationwide also showed that they are comfortable with the evolving Internet economy. Nearly 25 percent of those polled own shares in Internet companies, compared with 15 percent in March.

More to come

And that's just fine with Steve Frenkel, market strategist at Ladenburg, Thalmann & Co., who counts himself among Wall Street's most bullish. He scoffs at the notion that the Nasdaq has risen too high or that investors should be particularly concerned.

He predicts that the United States is on the verge of a technological boom not seen since the 1880s, when electricity and railroads dramatically increased productivity.

"Earnings are going to explode in technology companies 25 percent or more," said Mr. Frenkel. "That is why the Nasdaq went up 86 percent last year and it will go up even more this year."