First Take: Back to the future — Nasdaq 5000 circa 2015

Adam Shell | USA TODAY

Show Caption Hide Caption What does Nasdaq 5000 mean? | America's Markets USA Today's Matt Krantz takes a look at the significance of Nasdaq 5000 in this eiditon of America's Markets.

The once-deflated Nasdaq has fully reflated.

For the past 15 years, chatter about the Nasdaq 5000 was mainly in the past tense, a historical remnant of the dot-com stock bubble era. But today, for the first time since March 2000, the Nasdaq composite — powered by Apple, the world's most valuable company and maker of the iPhone, and a fresh wave of innovation in social media, digital technology and biotech — is back above 5000 and very much alive in the current events debate.

Way back when, on March 9, 2000, when the Internet was in diapers and investors were betting that the World Wide Web would be a moneymaking investment of epic proportions, the Nasdaq and its army of newly minted dot-com stocks skyrocketed to its first close above 5000, up an eye-popping 111% from a year earlier. At the time, "Nasdaq 5000" elicited a 1969 "man on the moon"-type awe from investors ranging from Wall Street titans to taxi drivers and hairdressers who viewed "Net stocks" as their ticket to gain entrance to the esteemed Millionaire's Club.

But as the history books show, life wasn't sustainable for the Nasdaq at those rarefied levels. The index closed above 5000 just two days. The rocket ship known as the Nasdaq – a tech-dominated index loaded with untested Internet companies valued by clicks rather than profits and trading at more than 100 times projected earnings that never materialized – ran out of fuel. Once irrationally exuberant investors stopped buying and sold and sold and sold, the index hit bottom in October 2002, nearly 80% below its peak of 5048.62 on March 10, 2000.

The feeling on Wall Street 15 years ago was that the Nasdaq — after failed dot-coms such as Pets.com were laid to rest and burned investors on both Main Street and Wall Street vowed never to fall in love with tech stocks again — would probably never see 5000 again, at least in the lifetimes of the investors who lived through the dark days of 2000, 2001 and 2002.

The Nasdaq has proved its detractors wrong. Like Marty McFly, the once-tarnished stock index has gone back to the future to repair the damage it caused investors in the past. Today, the Nasdaq loudly proclaimed: I'm back.

There's nothing to say that the Nasdaq won't move higher after taking out 5000, some Wall Street analysts say.

Ari Wald, a technical analyst at Oppenheimer, says tech stocks have more room to run.

He says a tech-focused, exchange-traded fund is among his top picks. The reason: After 10 years of moving sideways and building a "base," he expects the tech sector "to slowly retrace its underperformance vs. the (broader) S&P 500 suffered between 2000 and 2002."

Is Nasdaq 6000, which amounts to a 20% move higher, next? Or is another plunge more likely? It's impossible to predict.

The Nasdaq's comeback and resurgence is a story of continued innovation, a story of more reasonably valued stocks and, most important, a story of profits as opposed to dreams.

The first go-round with Internet stocks was about speculation, about getting in on the hot new investment trend no matter how flimsy the business model, about buying into a dream, about get-rich-quick schemes.

The current fascination with all-things tech is different.

It is about investing in real companies with real earnings (think Apple and its money-minting global iPhone franchise and biotech drugmaker Amgen, which has scored recently with its arthritis drug Enbrel); it's about getting in on the ground floor of new companies transforming the way the world communicates and figuring out ways to monetize tech breakthroughs (think social media giant Facebook and its world-altering idea of linking the entire globe via cyberspace); it's about coming up with ways to make real money (think Google and its advertising-driven search engine) without betting the farm on a tech stock akin to a property investment built on a foundation of sand.

What else is different this time?

• The companies driving the Nasdaq have real earnings. (Apple earned nearly $75 billion in the quarter ended in December, and Amgen posted $5.3 billion in sales.)

• The companies driving the Nasdaq are more mature. (Google was born in 1998 and went public in 2004.)

• The Nasdaq is priced far less expensively vs. earnings than it was back in 2000. Fifteen years ago at the top, the Nasdaq traded at more than 100 times earnings vs. a price-to-earnings ratio today of 21, according to Barron's.

• The Nasdaq isn't driven by tech names alone; biotech is a growing and profitable part of the index, and health care makes up roughly 15% of the Nasdaq vs. 5% back in 2000, according to Schaeffer's Investment Research's Todd Salamone. Jonathan Golub, chief U.S. strategist at RBC Capital, says biotech is his favorite subsector, in large part because of strong earnings growth, attractive valuations and an increasing number of novel drug approvals.

• Perhaps most important, investors aren't nearly as head-over-heels in love with tech stocks as they were back in 2000.

Paul Hickey at Bespoke Investment Group uses an anecdote to drive that point home. He notes that CNBC recently featured a 15-year-old high school girl that set up a Web-based babysitting business that is now "worth millions." Hickey joked that if this were 1999, the babysitting company "would probably be worth billions."

That's not to say that some corners of the stock market aren't looking a bit stretched, Hickey says.

"Is this 1999 all over again? Certainly there are many areas of the market that may be getting a little bit frothy, but the current Nasdaq is more unlike 1999 than like it," he told clients in a report.