as part of our
Historically, technology has outperformed other sectors on the
stock market, but that has not been the case lately. All time
winners have been lagging behind the rest of the market and
flagship stocks such as Microsoft (
) or Dell (
) have going sideways or declining over the past ten years.
As I'm sure you've noticed, technology stocks such as Hewlett
Packard (HPX), Research in Motion (RIM), and Nokia (
) have been crushed lately. PE ratios of technology stocks are
generally fairly low as compared with historical standards.
The PE ratio of MSFT is 15.43 as of August 31 as compared with
its 10-year PE average of 19.95. A similar issue is happening
with Dell, whose current PE ratio is 6.29 as of the end
of last month as compared with its PE over ten years of of 8.48.
This phenomenon seems to be a pattern in the industry, and sadly
only a few technology stocks-like Apple (
)-have escaped the trend.
Many investors today still seem to be scarred by the carnage
that occurred during the bursting of the internet bubble in the
early 2000s. However, the technology sector today appears to
be a much different environment than that of the bubble era. The
sector is now dominated by companies that actually produce products
and services rather than simply relying on "growing numbers."
) topped the $700 mark for the first time since 2007 when shares
hit a new 52-week high of $712.25 on Friday September 7th. That's
less than 5% below its all-time high of a little more than $747.
The stock may have lagged in the broader tech market during the
past five years, but it seems to be hitting a growth spurt. In the
past month alone, shares have spiked 11%. Google is one of the
companies I have my eye on and am considering investing in later
Despite the underperformance of the sector over the past few
years, I believe we are nearing the point where the sector will
rise again as it did in the late nineties. To be clear, I'm not
talking about Facebook (FB), whose IPO I recommended not to buy,
Zynga (ZNGA), Pandora (P), Groupon (GRPN), or any of the other
trendy social networking based companies that are just that:
fashionable stocks which are easily replaced as soon as a new idea
These types of companies have no barriers for entry. Just look
at Pandora, as soon as it went public several competitors started
to pop up with even better services - e.g. Rdio, Spotify and even
Apple who recently announced a similar competitive service. When
the Wall Street Journal reported that Apple was seeking to launch a
Pandora-like serve, stock of the Internet radio service fell
When I say technology will shine again, I'm talking about
serious companies with a strong infrastructure, solid products and
an above average market share. These include Microsoft, Dell,
Oracle (ORCL), Hewlett Packard, Intel (INTC), Qualcomm (QCOM), and
While most of these companies have struggled over the past
several years after being affected by the recession that hit both
consumers and corporate segments hard, I believe this scenario will
change very soon with the introduction and massive adoption of new
technologies and platforms.
In the mobile arena, Near Field Communication (NFC) will become
a major player, so far only Google has pushed this initiative, but
as soon as Apple and other mobile providers follow suit, the
adoption of this technology will move to a different level. I
expect the new iPhone 5 launch (coming later this fall) to include
Companies will be forced to upgrade their hardware and software
in the near future with the introduction of Windows 8, which will
make most of the corporate suites obsolete and incompatible with
other systems. Windows 8 will introduce a new paradigm, and there
is no way companies will be able to continue to use old products
such as Windows XP and remain competitive. As companies around the
world begin to upgrade their systems and solutions, technology
stocks will flourish as they did years ago.
I have been waiting for months to get a position in Microsoft at
a $24/$25 level, but it seems that the new floor for the share
price is $30, so I may have to give up on my hope for a lower share
price and get a position in the next quarter.
I am also planning to increase my holdings in Dell, which has a
very attractive current price, despite the fact that they will
begin paying dividends and that they have made more than 10 large
acquisitions over the past few years to strengthen the company's
position with corporations and IT services.
Other stocks that I plan to hold for the long run and likely
increase my position in Q4 2012 are Qualcomm, Intel and IBM.
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