With new composure, Nasdaq marches toward its dot-com peak
NEW YORK — It takes a long time to recover from a bad hangover, especially when you party like it's 1999.
The Nasdaq Composite is up 35 percent this year, but while other major indexes like the Dow Jones industrial average and Standard & Poor's 500 have celebrated all-time highs again and again, the Nasdaq remains 20 percent below its dot-com peak of 5,048.62.
That's a good thing because the biggest beneficiary of the late '90s Internet mania was also its biggest victim. After cresting on March 10, 2000, the index lost nearly 80 percent of its value over the next two years, touching bottom on Oct. 9, 2002, at 1,114.11. The Dow fell 27 percent over the same period, and the S&P 500 dropped 44 percent.
Even as it soars faster than other indexes, the Nasdaq isn't what it was. While still tech-heavy, it's more diverse, reasonably valued and loaded with profitable companies, investors say.
“The Nasdaq is very different, in every measureable, quantifiable way, than it was,” said Gavin Baker, who manages nearly $10 billion in assets for the Fidelity OTC fund.
Technology companies make up a smaller percentage of the index, about 42 percent, compared with 56 percent 13 years ago. And consumer-focused companies such as Amazon.com are a much bigger part of the index, making up 22 percent, compared with basically zero in March 2000.
The Nasdaq recently passed the 4,000 mark, a level last seen in September 2000. But that doesn't mean its stocks are back in a dot-com-like bubble. Yes, it's still riskier than the Dow and S&P 500, investors say, because it contains hundreds of small companies and is heavily exposed to technology. But it is significantly less risky than it was.
When the bubble was at its biggest, the index had a price-to-earnings ratio of 194:1. Today, the Nasdaq's P/E is about 23.5, according to FactSet.