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High tech may lead the long march back

Is high tech about to stage a comeback? Most experts are not ready to bet the family homestead on the sector.

But something is stirring.

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Last Wednesday, the Nasdaq Composite Index posted its biggest one-day percentage rise in almost six months, following optimistic comments about future growth prospects from the chief executive of Cisco Systems.

The next day, tech stocks again rallied somewhat, following upbeat comments from Dell Computer. Analysts now wonder: Is this the start of a renascent period for high-tech?

So far in 2001, the broader indexes suggest otherwise: The Dow Jones Industrial Average was down 18 percent through Sept. 30. The tech-oriented Nasdaq has fallen a full 40 percent.

Yet modest evidence suggests that some components of technology may rebound during the coming year. A number of large-cap tech firms have held their own this year - among them Microsoft and AOL Time Warner. Some analysts also feel that stepped-up defense spending could spur high tech as America ramps up for its war on terrorism. But will that be enough?

"It's anyone's guess when the tech sector will come back, but a lot of analysts are now talking about sometime in the second half of next year," says Francois Olivier, an analyst at the California Technology Stock Newsletter, in Half Moon Bay.

To catch the upswing, investors should buy selected companies now, Mr. Olivier says. Many firms, he says, are "very attractive" in terms of lower valuations and fallen stock prices.

The starting place to be, he says: large-cap behemoths that constitute the sector's backbone such as Intel, Sun Microsystems, Oracle, and Microsoft. These companies, with their huge market shares, tend to be cash rich. In telecommunications, Olivier likes the larger firms. In cellular, Nokia stands out. The company is poised to enter the giant China market. But Olivier is hesitant about the networking sector and e-commerce firms.

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Finally, in a report issued last week, investment house Salomon Smith Barney concluded that, given attractive valuation levels, selected semiconductor firms have "significant upside potential with relatively limited downside."