Monday, 25 April 2005

Time to buy technology?

Are tech stocks about to lose the blues?. Norm Alster finds several analysts who think so.

Wall Street has been bearish on technology for so long that it has been easy to overlook the few stubborn bulls who have challenged the consensus. For them, the pummeling of tech shares--which even after last week's modest net gains are down roughly 11 percent for the year, and more than 60 percent since they peaked in March 2000--had gone too far, creating attractive investment opportunities. Walter C. Price Jr., co-manager of the Wells Fargo Specialized Technology fund, predicts a spectacular run-up. "My target for the Nasdaq for two years is 3,500," Price said. The Nasdaq closed on Friday at 1,932.19.

Larry J. Puglia, portfolio manager of the T. Rowe Price Global Technology fund, says he has underweighted tech investments for the last five years but has been a buyer of late. "Looking at valuation relative to growth in earnings and free cash flow, tech stands out for the first time as one of the more attractive sectors," he said.

And Brian Belski, market strategist at Piper Jaffray, argues that investors who have forgotten about tech stocks should start paying attention again. "We think tech stocks will outperform the market," he said.

Read the detailed reasons in the article.

While there doesn't seem to be anything particularly wrong about the reasoning given in the article, I remain wary about the technology sector. My views of Singapore's electronics sector that I stated in "Electronics stocks still underperforming" I think applies to the overall technology sector as well:

[E]ven where the outlook for electronics companies may be improving, the outlook for their stock prices may be a different matter. Investors apparently never quite gave up on the sector, looking forward to the eventual turnaround. When it comes, stock prices may not react correspondingly.

And for a contrarian's view on technology, read Bill Fleckenstein's commentary "Technology: Use the gadgets, avoid the stocks".

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