Clicking on banner ads enables JWR to constantly improve
Jewish World Review March 19, 2001 / 24 Adar, 5761

James K. Glassman

Jim Glassman
JWR's Pundits
World Editorial
Cartoon Showcase

Mallard Fillmore

Michael Barone
Mona Charen
Linda Chavez
Greg Crosby
Larry Elder
Don Feder
Suzanne Fields
James Glassman
Paul Greenberg
Bob Greene
Betsy Hart
Nat Hentoff
David Horowitz
Marianne Jennings
Michael Kelly
Mort Kondracke
Ch. Krauthammer
Lawrence Kudlow
Dr. Laura
John Leo
David Limbaugh
Michelle Malkin
Jackie Mason
Chris Matthews
Michael Medved
Kathleen Parker
Wes Pruden
Sam Schulman
Amity Shlaes
Roger Simon
Tony Snow
Thomas Sowell
Cal Thomas
Jonathan S. Tobin
Ben Wattenberg
George Will
Bruce Williams
Walter Williams
Mort Zuckerman

Consumer Reports

'Defensive' Stocks in the NASDAQ --
WHEN Wall Street analysts talk about defensive stocks, they usually mean providers of food, tobacco, consumer goods - things that people will buy no matter what the economy is doing. Since this seems to be the season for defensive stocks, you may be looking for companies with a limited downside.

You can actually find a few of them in high tech, according to Jaye Morency and Vinnie Muscolino of David L. Babson & Co., Cambridge, Mass. The two fund managers recently sent their clients a letter entitled, "Technology: Now's The Time for the Stout-Hearted."

This is certainly a time for equity investors to hang tough, and the Babson managers say that software firms are particularly appealing in a bear market. Here's their take: "The software business is less cyclical than most other technology fields, so this group is a defensive way to invest in technology. Moreover, a lot of hardware was sold in 2000 and now it's time to run that hardware and make it productive. That is the job of software."

Morency and Muscolino like Adobe Systems (ADBE), Informix (IFMX), Microsoft (MSFT), Nuance (NUAN), Oracle (ORCL), Sabre Holdings (TSG), and Symantec (SYMC).

I share their interest in software companies, and not just because they may be good defensive stocks. Software is the world's great intellectual property industry. What does that mean? It means that these companies deliver genuine innovations and are paid accordingly. It means gathering a bunch of really smart people together to create something new and special, receiving a copyright or a patent and then selling untold numbers of copies of the invention at a marginal cost that approaches zero. In a competitive world, a copyright is a legal monopoly. Software firms can make particularly good use of this advantage, because the manufacturing and distribution costs are so low.

Software is like the computer chip industry except you don't have to build a factory. It's like the pharmaceutical industry except you don't need FDA approval. It's like Hollywood without the $20 million salaries. You only pay employees big money (in the form of stock options) if your productions turn out to be blockbusters.

Of course, other smart people can come along and copyright something that's even better than your stuff. But for the leaders in this industry, software is a very profitable business. Speaking of leaders, I particularly like three of the companies on the Babson list - Microsoft, Adobe and Symantec.

Microsoft is quite simply the world's greatest technology firm. Its desktop operating systems may seem less important in a Web-centric world, but the company's Windows 2000 is gaining ground as a network operating system for large corporate customers. As for consumers, Microsoft and its family of websites recently surpassed Yahoo! as the second most popular online destination behind AOL, according to Jupiter MediaMetrix. Don't forget that Microsoft also makes the most popular software applications and is making inroads in the wireless and TV set-top markets.

Adobe Systems makes a number of products that help people create, manipulate and transmit digital images. Its Photoshop software is the gold standard for web and offline publishers preparing images for display, and Adobe's Acrobat is ubiquitous on the Web, allowing people and companies to share large documents and other data.

Whenever you see a "Naked Wife" or an Anna Kournikova virus come along, you can almost hear the cash registers ringing for Symantec's anti-virus and security software. Symantec's product line, which includes the trusted Norton brand, allows consumers and corporations to secure, scrub and filter the information in their computers.

Microsoft, Adobe Systems and Symantec are all trading well below their highs and would make great additions to a balanced portfolio. Along with these three tech leaders, more aggressive investors might also wish to consider two companies with limited track records but bright prospects.

Just in time for St. Patrick's Day, two up-and-coming Irish software companies look to be attractively priced and poised for future growth. Ireland, by the way, has emerged as a market-friendly, high-growth, high-tech star of the European economy. So it's no surprise to find two vibrant young software firms on the Emerald Isle.

Riverdeep Group (RVDP) is an educational software company based in Ireland, but it's actually a U.S. education play in the K-12 market. This survivor from the IPO class of 2000 makes Internet-based and CD-ROM educational software that is rapidly gaining ground in American schools. With government spending on education likely to grow, RVDP is largely insulated from the current downturn in tech markets.

Iona Technologies (IONA), also based in Dublin, makes portal software for an increasing number of American corporate customers. Iona's software helps a company make its existing programs web-friendly, so that users can access information via a web browser.

Tech investors may be hoping for the luck of the Irish, but all they really need is patience. These five software companies should reward the stouthearted, otherwise known as long-term shareholders.

JWR contributor James K. Glassman is the host of Tech Central Station. Comment by clicking here.


03/15/01: Bush administration must say no to Jane and Kyoto
03/08/01: Time to buy small caps? Consider these five great techs
03/01/01: Billís and Larryís continued political adventures
02/26/01: Chips on the Dips?
02/23/01: How Tauzin Can Keep His Word And Stop Telecom "Remonopolization"
02/13/01: Consumers, WAKE UP! Middlemen are ripping you off
02/02/01: Publicity-Seeking Politicians and Contingency-Fee Lawyers Corrupt the Law
01/26/01: DoubleClick, eBay And Their Promising Ilk
01/24/01: Will Cyberspace Look Like France or America?
12/27/00: Cut interest, taxes and regulation to save high-tech economy
12/20/00: Close, But No Big Czar
12/15/00: A Down Year? Maybe. But Letís Put It in Perspective
12/13/00: Clintonís sorry midnight race into history
12/07/00: Is Telecomís Future The Bells, The Bells, and Only The Bells?
12/01/00: Money talks and walks in election aftermath
11/29/00: Climate Treaty Deadlock Shows Lack of Consensus and Common Sense
11/23/00: Climate change participants donít listen to reasons for uncertainty
11/21/00: Will Regulators Create a Recession?
11/14/00: The Election and the Market
10/26/00: Hang on for the long term
10/25/00: On privacy, one size doesnít fit all
10/24/00: Perish the bearish thought
10/19/00: Beating hunger --- the biggest prize
10/13/00: Way to play biotech
10/12/00: Bush vs. Gore on Technology
10/11/00: Global Climate Scare: Fools Rush In
10/05/00: Avoid the Apple Trap
10/03/00: Goodbye, anti-Microsoft crusader --- and good riddance
09/29/00: Should You Invest in Tech IPOs?
09/27/00: Could technology end airline delays?
09/22/00: Donít Forget Small Caps
09/20/00: Is the New York Times Rooting for Disaster?
09/13/00: The Best Argument Against Net Regulation
08/30/00: Political Risk in Big Drug Stocks
07/27/00: Tech Dividends
07/25/00: Government Privacy Violators
07/20/00: If I Had to Pick One Tech Stock
07/18/00: Our Favorite Lawsuit
07/13/00: Silicon Valley East
07/11/00: Election 2000: Year of the Investor Class?
07/07/00: Adventures on the
07/06/00:The Difference Between Bill Gates and Larry Ellison
06/29/00: In the Chips
06/27/00: Free market wins in Federal Court!
06/22/00: Wireless Bargains?
06/20/00: Is Your SUV Warming the Planet?
06/15/00: Shopping for Government
06/13/00: Top 10 Tech Stocks
06/08/00: Riding the eBook Wave
06/06/00: "The Last Mile"
06/02/00: Keep Buying!
05/31/00: Who Asked the FTC to Regulate Online Privacy?
05/25/00: "When Itís Time to Sell"
05/23/00: End the "Telephone Tax"
05/16/00: Time Warner Gets a Bad Rap

© 2000, Tech Central Station