Building a Better High-Multiple Portfolio

This column was originally published on July 22, 2004 at 7:59 a.m. EDT.

We awoke Wednesday morning with a renewed sense of optimism that the doom and gloom surrounding the technology sector may finally be coming to an end. But the afternoon's selloff highlighted the market's vulnerability, and casts doubt on whether the 6.5% slide suffered by Nasdaq Composite over the last three weeks is truly at an end.

Given the continued rich valuations, and the beatings such as the ones Yahoo! (YHOO Quote) and eBay (EBAY Quote) recently received for merely meeting expectations, it's understandable that investors would be reluctant to step back in and buy the high-multiple names.

Last month, Jim Cramer described his frustration that his fear of owning high-multiple stocks has prevented him from adding names such as eBay(EBAY Quote), Broadcom(BRCM Quote) and Qualcomm(QCOM Quote) to his portfolio, despite his belief that one needs to own these names to outperform the market. Jim went on to explain that if he wasn't restricted from trading options, he would be buying calls to gain upside exposure in these companies. ...