NEW YORK, Feb 29 (Reuters) - The Nasdaq composite index briefly traded above 3,000 Wednesday, a level not seen in more than a decade, during the bursting of the dot-com bubble.
The circumstances behind each of the numbers are not the same, however. The dot-com bubble, and its collapse, were driven by the Pets.com genre of companies -- more ideas than business models.
This time around the rise to 3,000 has been led by solid tech companies with price-to-earnings ratios that frequently mirror the average PE for the companies that make up the S&P index of 500 stocks, despite their much higher growth rates.
For these tech companies issue is not growth and profitability, but cash -- too much of it.
Apple, which accounts for 11 percent of the Nasdaq's weighting, has nearly $100 billion in cash on its balance sheet. Microsoft, the Nasdaq's second-largest company, has about $52 billion , while Google, the third largest, holds nearly $45 billion.
Meanwhile, technology companies in the S&P 500 index, on average, hold $5.6 billion in cash, or double the $2.8 billion held, on average, by all the companies that make up the broad index, according to Standard & Poor's.
Many technology companies behind the Nasdaq's big moves are now trading like value stocks. High levels of cash, an expanding economy and growth of the mobile market should continue to push the technology sector higher this year.
How to play the technology-heavy Nasdaq , with a value tint:
Giant technology companies may soon offer bigger dividends.
"The idea that technology companies shouldn't pay a dividend is of the last century," said John Manley, chief equity strategist at Wells Fargo Funds. "These companies are generating enough returns to offer a payment to shareholders while still funding their potential growth."
More technology companies should be able to initiate dividends or increase them this year because corporate spending should lead to higher sales, Manley added.
"There are darn few ways that corporations can expand on profitability without increasing top-line growth -- you can only fire someone once -- and technology is one way to make themselves more cost effective," he said.
Apple's nearly $100 billion cash hoard is particularly enticing to shareholders. The company has not paid a dividend since 1995, though analysts have interpreted recent comments by Chief Executive Tim Cook as a signal that the company will offer one soon.
Despite reaching $548 per share, Apple has the looks of a value stock. The company trades at 15 times earnings, close to the 14 earnings multiple of the broad S&P 500 index, despite the fact that its earnings per share grew nearly 83 percent last year, nearly four times that of the broad index.
Apple, which makes up just 0.4 percent of assets in the largest U.S. value funds, would be more attractive to institutional investors if it were to offer a dividend, said Toni Sacconaghi, an analyst at Sanford Bernstein.
Some high-performing value funds are already moving into the stock in anticipation. Apple shares now make up 7 percent of the $633 million Artisan Value Fund. Other large Nasdaq companies like Microsoft and Cisco Systems each make up about 5 percent of the fund's assets.
Artisan Value returned 5.5 percent in 2011, more than double the 2 percent return for the S&P 500 after dividends.
Another reason technology stocks may climb: investors do not have many other options.
"Their balance sheets are so much better and overall the market is healthier given what the alternatives are," said Mark Lehmann, president of JMP Securities.
Companies like Intel, for instance, offer both a dividend yield of 3.1 percent and the prospect of share price gains. The 10-year Treasury, meanwhile, yields just 2 percent. Commodities and international stocks also don't seem to offer attractive growth rates, he said.
Lehmann is especially positive on the software market. He likes Salesforce.com, whose revenues recently reached a record $632 million. The company, which is building new cloud-based products to complement applications like Force.com and Database.com, also has signed deals with Dell Inc and Deloitte over the last year. This should help increase its market share.
It could also be a momentum play. The company's shares are up 41 percent since the start of the year and remain 10 percent below the 52-week high of $160 that they reached in July.
Aruba Networks is another option. The networking company is gaining market share from larger rival Cisco, noted Shebly Seyrafi, an analyst at FBN Securities. Wireless network revenue at the company rose 44 percent in its fourth quarter, a rate more than five times the comparable growth at Cisco, he noted.
ETFs may be the best way to play the Nasdaq index. The popular PowerShares QQQ is a strong candidate. The $34 billion fund tracks the Nasdaq 100 and charges 20 cents per $100 invested. It returned 3.4 percent last year.
Apple has the highest weighting in the Nasdaq 100 with 15.7 percent of assets, followed by 9 percent for Microsoft and 5.5 percent for Google. (Reporting By David Randall; Editing by Jennifer Merritt, Walden Siew and Steve Orlofsky)