These fundamentals are important simply because they point to the financial health of a company. The amount of cash on hand can be crucial to determining how long a company can survive if it is not yet earning profits. In the same vein, a heavy debt load can be problematic for unprofitable companies. And this past year's dot-com blowup has served as a reminder to take a look at what kind investments companies are making. We're just taking valuations and giving them a higher weight.
Some managers say that the key difference between the market then and now is perception.
Rob Zidar, co-manager of the Merrill Lynch Internet Strategies fund and senior analyst on the Merrill Lynch Global Technology fund, says the market was far too optimistic about the prospects of unprofitable companies at this time last year. But just as last year's irrational exuberance warped investors' sense of what they should be paying for stocks, Zidar says he's not letting the current pessimism distort his opinions of what he thinks are good, solid, long-term plays. Among the top holdings in his Internet fund, for example, are AOL Time Warner and Oracle. Jay Tracey, chief investment officer of Berger Funds, agrees that the current market favors individual stock-picking rather than sector weightings, adding that the market's dismal environment might even make it easier for managers to separate out leading companies from the rest of their sector. He is favoring what he considers predictable companies like networking systems producer Cisco, which he holds in the Berger Growth fund.