John J. Edwards III Chats on AOL, Dec. 27

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John J. Edwards III chatted on AOL MarketTalk Monday, Dec. 27. AOL's MarketTalk is hosted by Sage Online (Keyword: PF Live). As with all chats, this transcript is unedited.

OnlineHost:

Live from New York, NY, please welcome John Edwards, markets editor at TheStreet.com. John can answer your questions about the markets and investing.

OnlineHost:

John does NOT offer individual stock commentaries or recommendations.

Jedwards:

Hi. Great to be here!

Question:

The Nasdaq is up over 80% for the year. With the end of the year at hand, do you think we will have a meaningful move away from overbought tech stocks into value stocks?

Jedwards:

We may see such a move eventually, but I don't think it'll happen to a meaningful degree before the end of the year. The extraordinary turnaround we're seeing in the sector today, with the Nasdaq in positive territory after dipping as low as 3902, signals that there's still significant demand for the stocks that have worked this year: big-cap tech stocks.

Question:

Can you explain how pooling works when a company acquires another?

Jedwards:

Pooling is an accounting method whereby a merger is considered a pooling of interests rather than an outright acquisition. The method has been popular because it allows companies to avoid large goodwill charges, but I believe it's being phased out.

Question:

What do you see with food stocks?

Jedwards:

Very little. It's a low-margin business with little room for extraordinary growth, although of course there are solid performers in the sector, as you can find almost anywhere.

Question:

How do you go about getting stock if you don't trust the Internet and live in the middle of nowhere?

Jedwards:

It certainly can be difficult. I imagine you may live in an area remote from brokerage branch offices, so face-to-face interaction with a broker would be difficult. However, even if you distrust the Internet (which you shouldn't; it's as safe as anything else), you can conduct transactions by phone with most brokers.

Jedwards:

Ask friends and colleagues if they have trusted brokers they can suggest, and just call them up and chat about your investing options. But again, you really should reconsider using the resources available online.

Question:

Hello John. What do you think of the future for the electronic health care via the Internet, and the reduced cost savings that offers to the health care industry?

Jedwards:

I'm not an expert on the area, but my understanding is that while the health-care industry will realize a great deal of cost savings, those savings might not end up being quite significant enough to justify some of the valuations being placed on companies in the sector.

Jedwards:

You should check out the next SEC filings from companies like Healtheon to see what they're saying about their growth rates.

Question:

Do you see DSL surpassing cable access as the most popular high speed platform?

Jedwards:

If the cable companies can get their acts together, I think cable will remain a formidable competitor for DSL. But both technologies have limited distribution and various technological hurdles to clear, so it'll be a little while before we have a clear sense of winners and losers.

Question:

Do P/E ratios mean anything anymore with regard to tech stocks?

Jedwards:

They may mean little in the near term, but you can be sure they'll mean plenty at some point in the not-so-distant future. Eventually, the basic structure of investing has to be honored: People are putting a valuation on future earnings, and the future does eventually arrive.

Jedwards:

That's not to say that tech companies will have to have P/Es of 20 or perish; we could see a lasting reassessment of valuations, such that 50 or 100 times earnings becomes a rich but acceptable valuation. But companies that are skating by with promises that they're spending to build market share and profits will come later are going to be challenged increasingly sharply as "later" stretches out more and more.

SageMoola:

Thank you for joining us today, John!

Jedwards:

Thanks very much for having me.