Tech stocks top Dow in 2001

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By Ashlee Vance

(IDG) -- Many technology companies took a beating throughout 2001, but two of the IT industry's biggest players, Microsoft Corp. and IBM Corp., rang in as the top performers on the key Dow Jones Industrial Average during 2001. The two technology behemoths, along with explosive detection systems maker InVision Technologies Inc. -- the best-performing stock on a major U.S. exchange in 2001 -- provided bright spots for an otherwise battered sector.

Microsoft's shares have surged 52.74 percent over the past 52 weeks, outpacing all other companies that make up the Dow average. IBM took the second spot with a 42.31 percent gain in 2001, according to Dow Jones & Co. Inc.

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Only 11 of the Dow constituents gained ground last year, with AT&T Corp. (39.87 percent), Johnson & Johnson (12.50 percent), and Home Depot Inc. (11.65 percent), rounding out the top five performers.

The Dow average is a collection of well-established U.S. companies that lead their respective fields. The index is seen as an indicator of the overall U.S. market, covering industries including financial services, technology, retail entertainment and consumer goods.

Even with slumping PC sales, Microsoft was able to make gains as a result of the software industry's resiliency in difficult economic times, said Chuck Hill, research director at Thomson Financial/First Call in Boston.

"Communications equipment makers were by far the worst," Hill said. "The semiconductor guys were horrible, and hardware makers had a tough time. But software earnings were only down modestly. The software business will do reasonably well even in a lousy environment."

Microsoft could rise even more in the coming year, as the vendor will start seeing revenue roll in from its new Windows XP operating system. The company was caught in the middle of a product transition through much of last year and should have favorable year-on-year comparisons, Hill said.

IBM also benefitted from strong software and services businesses that offset hardware losses, Hill said.

The best-performing stock on the major U.S. exchanges was InVision, which soared 2,015 percent on the year, according to The Nasdaq Stock Market Inc. The company's stock shot up following the September 11 terrorist attacks on the U.S., as investors expected a push for bomb detection products.

Enron Corp. earned the dubious distinction of falling from 2000's top performing stock to 2001's worst performer still listed on a major U.S. exchange, according to financial research company Morningstar Inc. Shares of Enron fell more than 99 percent in the last 52 weeks.

While Microsoft and IBM held up over 2001, another of the industry's biggest players, Hewlett-Packard Co., was one of the worst performers on the Dow. The company's shares fell almost 35 percent, placing it fourth among the Dow losers. Boeing Co. dropped the most among Dow stocks, slipping 41.24 percent on the year.

While the technology sector had a few bright spots, Hill warned that investors may be pushing a recovery along too soon.

"The rebound in the technology shares since September 21 has been huge," Hill said. "I think the valuations are too high again. I don't think people learned their lessons with the correction we had."