These Big Victims of the Dot-com Bust Are Good Buys Again

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SANTA CLARA,CA/USA - MAY 11, 2014:  Microsoft corporate building in Santa Clara, California.  Microsoft is a multinational corpo
They say two thousand zero zero party over, oops! Out of time!
So tonight we gonna party like it's 1999!

-- Prince, "1999"

There is a saying in fashion that "if you wait long enough, everything comes back in to style." Though acid-washed jeans and Day-Glo shirts have yet to become trendy again -– thank goodness –- several stock darlings from the '90s that have been out of fashion for quite some time are now making a comeback.

When the dot-com bubble burst in 2000, many of the previous decade's high fliers took so much damage that they were given up for dead. For example, Microsoft's (MSFT) stock, which had gone up 11,800 percent in the previous 10 years, spent the 10 years following the crash basically going sideways –- aka dead money.

The same fate befell other '90s darlings like Oracle (ORCL) and Intel (INTC). It was common belief in professional investing circles that these once-hot companies had transitioned into more mature phases with slower growth and a corresponding flat stock price.

The Market's Up, and So Are They

However, with a multiyear bull market in full swing and the indexes hitting all-time highs, some of these left-for-dead '90s stocks seem to be staging miraculous resurrections.

For example, Oracle and Microsoft are within 7 percent and 13 percent of their respective all-time highs, both of which were set in late 2000. These numbers are particularly impressive given that post-bubble Oracle had lost 85 percent of its value and Microsoft 72 percent of its value.

Intel might be starting to move to its dot-com highs -- it's breaking into 12-year highs. Qualcomm (QCOM) is another stock from the decade that brought us grunge that has risen from the ashes. After losing almost 90 percent of its value by 2002, it is now within 19 percent of its all-time highs.

There is however another reason –- aside from the general bullish market -– that these stocks have been performing so well, and it's something all investors should pay attention to.

There's a Great Future in Diversification

In the '90s, Microsoft was primarily known for its computer operating system. That is where the vast majority of its sales and profits came from and one of the reasons its stock performed so well. But once it had saturated that market, there didn't seem to be much growth potential left.

But things have changed. Now Microsoft is a major player in the enterprise service business, an area that analysts think could see massive growth. It is also a player in online gaming with Xbox, as well as in VOIP with Skype. In essence, it has a number of technologies and products poised to drive revenues going forward in the same way Windows did in the '90s.

This is the type of transformation that investors want to look for in a company: a company throwing off consistent revenue with a strong bread-and-butter product line and moving into other areas that may reignite earnings growth, and by extension, stock price.

Beam Us Aboard, Scotty

A great example of this is Cisco (CSCO). Once primarily thought of as a provider of routers and switching equipment, Cisco is now rapidly moving into next-generation products such as high-def video conferencing and real-time traffic management systems.

Illustrating this forward-looking approach CEO John Chambers was recently quoted by the Wall Street Journal as saying, "As video moves to the Internet, it's time to have a 'Star Trek' experience. And so I said to my engineering team: I want this to be like 'Star Trek', and I want to be like Scotty."

Cisco is still 66 percent off its 2000 highs, but an approach like the one Chambers is taking to product development may reignite earnings growth at the company, allowing its stock price to catch up with some fellow members from the Class of 1999.

The Lund Loop is a free once-weekly curated slice of what I am writing, reading and hearing about in the stock market, finance, and tech.
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