There's not a lot of good news coming out of the Nasdaq today. Internet stocks are getting hit. Enterprise software stocks are getting hit. PC and chip makers are getting hit. So what's a tech investor to do?

We asked Scott Kessler, of Standard & Poor's Equity Research, for his three best picks in this market and the three stocks to avoid at all costs.

There's a raft of downgrades and warnings pouring out of Wall Street today, and no tech sector seems to be as hard hit as computers and the chips that power them. Just to name a few: UBS is cutting targets and estimates for Apple, Dell and HP; Weisel is cutting estimates on Apple; JP Morgan is cutting them on Dell; Citibank is cutting estimates or downgrading some 15 chip makers.

Post-bailout and post-markets crashing around the world. it seems to be dawning on everyone in tech-- whether on Wall Street or in Silicon Valley-- just how bad things are about to get through the rest of the year and into 2009.

I asked Scott Kessler, of Standard & Poor's Equity Research, just how bad holiday shopping looks for tech and where all these warnings were last week.

From Silicon Alley Insider, Oct. 3, 2008:

"Citizen journalism" apparently just failed its first significant test.  A CNN iReport poster reported this morning that Steve Jobs had been rushed to the ER after a severe heart attack.  Fortunately, it appears the story was false. We contacted an Apple spokeswoman, who categorically denied it. 

CNN's iReport kept the report up until at least 10:15 AM, about 20 minutes after we published Apple's denial. The story has since been removed.

CNN's iReport, Original Story

Steve Jobs was rushed to the ER just a few hours ago after suffering a major heart attack. I have an insider who tells me that paramedics were called after Steve claimed to be suffering from severe chest pains and shortness of breath. My source has opted to remain anonymous, but he is quite reliable. I haven't seen anything about this anywhere else yet, and as of right now, I have no further information, so I thought this would be a good place to start. If anyone else has more information, please share it.

Immediately after reading the iReport story, we contacted Apple.  Katie Cotton, Vice President of Worldwide Communications, replied quickly, saying "It is not true." 

Twitter is abuzz. Apple's stock also took a major hit before bouncing back.

Investigation?

We expect this will lead to an SEC investigation. The IP address of the iReport poster will be easily traceable, and we expect the SEC will want to interview him or her to see if the story was "placed."  (You don't have to be George Soros to figure out how the stock would react to a story like this.)

For real-time conversations about Jobs, go to Silicon Alley Insider.

While I had investor and blogger Paul Kedrosky’s attention today, I asked him for some practical advice for the tech investor amid all the madness. Among his pearls of wisdom:

• Stay out of it until the government is done doing whatever it’s going to do
• Avoid consumer-facing stocks, yes, that means Apple too.
• Consider bulking up on solar.

More advice and explanations in the clip. Enjoy, as much as you can enjoy anything stock related in this climate!

Watching the Nasdaq drop the most points since May 2000, it's clear Silicon Valley isn't immune from the bank meltdown on Wall Street. Even the mighty Google and Apple weren't safe: Google fell more than 11% today to under 400 for the first time in two years and Apple fell nearly 18%.

There is plenty for tech investors to worry about:

-    The financial sector could slash IT budgets, impacting enterprise players like Oralce, IBM and Hewlett-Packard. At a minimum there are fewer banks to buy up software, hardware and services thanks to the forced consolidation.

-    A worsening economy will very likely hurt every consumer play from Research in Motion to Apple to gaming companies. Already, RBC Capital Markets says 40% of people plan on spending less money on electronics in the next 90 days, the weakest outlook the bank has ever seen. That doesn't bode well for a strong Christmas season.

-    Web companies grappling with a continued deterioration in advertising spending now that the Olympic boost is over and the presidential election has just a little over a month left.

-    The impact a shut down IPO and acquisition market has on an already abysmal year for venture capital returns. Sure, the public markets don't immediately affect startups; that's the advantage of being private. But investors need a return at some point. In sectors that have been overheated in recent years like the Web or clean tech, expect second and third rounds of funding to get tighter if companies aren't showing any progress on revenues. With ad markets shut off and the general economy in turmoil, that's a lot harder to do. Entrepreneur Jason Calcanis recently said the collapsing economy would kill some 50%-80% of startups. You can argue that's just the odds to the early stage startup game, but this economy and its lack of liquidity and confidence certainly doesn't help.

We'll keep an eye on all of these ripples, as shoes continue to drop in this crisis and the Valley picks its jaw up off the floor and actually starts to react. But it's important to realize so far it's a story of ripples in the Valley-a long list of potentially deadly ripples to be sure-but ripples nonetheless. For people who've been in the Valley more than ten years, there's none of the hand-wringing of the last bust when more than 450,000 Valley workers lost their jobs in a little more than a year and the Nasdaq lost three-quarters of its value in just a few years.

From Silicon Alley Insider, Sept. 26, 2008:

The Wall Street collapse is terrible for tech, obviously.  But it could be worse.

Forrester Research says the financial sector's troubled firms (Lehman, Merrill, Bear Stearns, AIG, Fannie, Freddie) all together equal about 2% of tech spending. Given Forrester sizes the US tech market at $572 billion, that's about $11.4 billion dollars at risk.

But that's not the worry, says Forrester CEO George Colony:

The biggest risk to the tech market comes, not from the Wall Street collapse, but from a collateral U.S. recession. Forrester expects a mild recession in the U.S. and Europe lasting through Q3 and Q4 of 2008, and Q1 of 2009. While tech spending grew 8% in the U.S. in 2007, we are forecasting tech purchases to be up 5% in 2008, and up 6% in 2009.

But government bailouts are keeping some of those firms and their billions of dollars in tech spending alive. And even in death banks like Lehman and Merill spur Wall Street IT spending. Colony again:

the rigors of mergers and integration could also be drivers of new tech spending. Bank of America, Barclays, and JP Morgan have 36 months of intensive technology integration work ahead -- this will drive professional service, software, and to a lesser extent, hardware spending.

Translation: Bank of America took over Merrill, and Barclays bought Lehman's data centers. The work to get technology and enterprise systems like general ledger and human resources under the same umbrella can be a bonanza for tech consulting firms like Accenture or HP's EDS. But there's probably enough hardware to go around, so not much upside there for players like Sun.

From Silicon Alley Insider, Sept. 24, 2008:

It's happened again: The stock of the most beloved company in the world, Apple (AAPL), has dropped more than a third off its highs. Of course this means that no one likes it anymore.

Well, wake up, people! If you really think that Apple's going to take over the world, this is the time to love the stock, not when it claws its way back toward $200 again.

Will Apple be affected by the global economic slowdown? Almost certainly. Are Apple's margin guidance (and current revenue estimates) for the coming year concerns? Absolutely. Could Apple's stock really fall out of bed if we go into another Great Depression -- dropping to, say, $50 a share? Of course. But so could any stock. (These are stocks, not Treasury bonds -- if you can't stand the heat, get out of the kitchen).

But all that aside, Apple's stock just isn't that expensive anymore. At $127, the stock is trading at about 25X trailing earnings (that's trailing, not analysts' hallucinations about what is going to happen over the next few years).

Even better, thanks to the extraordinary cash-flow characteristics of the booming iPhone (get cash now, recognize revenue over 24 months), Apple's valuation on an enterprise value to free cash flow basis is even more attractive: 15X.

What the heck is "enterprise value to free cash flow"?

That's the value of Apple's actual business ($91 billion) relative to the free cash flow the company has generated over the past year ($6 billion). For a company with Apple's future promise, market position, and growth rate, 15X just isn't that expensive.

Does it mean there's no downside to Apple's stock? Again, of course not: Apple's cash flow could get smashed by a recession, a stock market crash could compress the multiple to 7-10 times, etc. There's always downside. But at 15X, there's a lot less downside than there was a few months ago, when Apple was trading at $190 a share and everyone loved it.

See Also:
Sorry, Bailout History Suggests Stock Market Will Keep Falling
Microsoft's Real Problem: The Second Coming of Apple

From Silicon Alley Insider, Sept. 16, 2008:

Last month Dell blew its earnings goals and warned of lousy times ahead: It said IT spending was no longer bad just in the U.S., but that the malaise was spreading across Europe and parts of Asia, too. Three weeks later, the company feels compelled to put out a press release reiterating the same point. It's not changing guidance. But it is pointing out that its problems aren't going to get fixed by a new line of PCs, no matter how nice they look.

When Dell announced Q2 financial results on Aug. 28, 2008, it reported continued conservatism in IT spending in the U.S., which had extended into Western Europe and several countries in Asia. The company is seeing further softening in global end-user demand in the current quarter.

Dell will continue to execute against its five growth priorities of global consumer, small and medium business, enterprise, notebooks and emerging countries. The company expects to incur costs as it realigns its business to improve competitiveness, reduce headcount and invest in infrastructure and acquisitions, but is committed to working aggressively on cost initiatives that will benefit its P&L over time with improved growth, profitability and cash flow. The company grew unit shipments faster than the industry in the first half of calendar 2008 and expects to grow faster than the industry for the full year.

How can things turn bad enough to justify another warning in the span of three weeks? We're hoping someone asks Dell CFO Brian Gladden that at the Bank Of America investor conference today: We'll be covering the event, which starts at 2pm Eastern.

See Also: Dell Q2: Sales Huge, Profits Lousy, Spending Weakness "Extending"

From Silicon Alley Insider, Sept. 9, 2008:

As expected Steve Jobs announced new iPods -- specifically the Nano and the iPod Touch, as well as a new iTunes version.

The iPod Touch is still priced $30 above the cheapest iPhone model -- for the same storage capacity, but the new $16 GB model is $299 -- the same as it's iPhone counterpart (obviously not including wireless service from AT&T).

Live keynote highlights after the jump.

All eyes are on Steve Jobs Tuesday as he's slated to host Apple's "Let's Rock" event in San Francisco today. Speculation is swirling about whether Apple will unveil something more than "just" an upgrade to its iPod line, as is widely expected.

But Apple, and fellow tech titan Google, were in focus Monday for other reasons: Being notable laggards amid the broad market's embrace of the Fannie-Freddie bailout plan.

Todd Harrison, CEO of Minyanville.com and a former trader at Morgan Stanley, Galleon Group, and Cramer Berkowitz, said investors much separate "good stocks from good companies" when it comes to Apple and Google, which was also hit by news of a Justice Department investigation into potential antitrust violations.

Harrison says these and other high-beta stocks are suffering from:

• Multiple Compression: Which is a function of traders being less willing to pay up for high P/E stocks because of a lack of faith in their earnings growth or general economic concerns, or both.
• Hedge Fund Selling: For a long time, hedge funds were "hiding" in tech stocks like Apple and Google as a way to shelter themselves from the credit storms and rising commodity prices, Harrison says. Now those trades are coming off for a variety of reasons, including falling commodity prices and hedge fund blowups unrelated to tech.

For these and other reasons, Harrison is generally bearish on tech stocks, which he does not think has priced in the recent bad news from Dell, Corning, Ciena, and others.