Battered Tech Darlings May Soon Be Cheap EnoughBy Reuters - | Posted 2008-01-24 Print
The sexiest names in technology have been hit hard in a U.S. stock sell-off, but some investors are already betting on a comeback while others are sticking with the sector but switching to other stocks.
NEW YORK (Reuters) - The sexiest names in technology have been hit hard in a U.S. stock sell-off, but some investors are already betting on a comeback while others are sticking with the sector but switching to other stocks.
Fund managers and analysts say widespread fears over the effects of a U.S. recession have knocked out most of the "momentum money" that propelled the four big names in tech investing in 2007 — Google Inc, Apple Inc , Amazon.com Inc and Research In Motion Ltd.
In the first few weeks of 2008, their valuations have been dragged down to much more appetizing levels, leaving some to argue that it will be worth getting back into these stocks by the second quarter of the year.
"The volatility is going down right now, and once the current uncertainty plays out, it's opening up a fabulous buying opportunity," said Jeffrey Lindsay of Sanford C. Bernstein.
Google, Amazon and RIM have lost about 19 percent of their market value each since the start of the year, while Apple shares have shed nearly 30 percent. The Standard & Poor's 500 Index has dropped about 8 percent in that time.
The declines reverse some of the steep price increases seen in the last half of 2007, when investors viewed technology as a safer bet than a financial services sector grappling with the fallout from a subprime mortgage crisis.
"Technology has been thrown out with everything right now," said Keith Wirtz, president and chief investment officer at Fifth Third Asset Management, which manages $22.5 billion. "They've gotten cheap again and I still think the core fundamentals look very attractive."
Apple, for example, trades at a multiple of about 22 times fiscal 2008 earnings, according to Reuters Estimates, which some say is low compared with its growth projections.
Fears that consumers will be less likely to buy sleek iPods or iPhones have weighed on the shares, but Wirtz sees it as a no-brainer that the quality of Apple's brand will keep it growing by 20 percent or more in the next two to three years.
Wirtz's fund holds shares in all four companies and added to positions in Apple and RIM on Wednesday.
"If you were concerned about valuation three days ago, that valuation concern has been taken out of the stock," Wirtz said of Apple, shares of which slid on a weak earnings forecast.
Longer-term value investors, however, prefer some of the oldest technology names.
"I didn't think they were good in 2007," said Kim Caughey, senior analyst at Fort Pitt Capital, referring to Google, Apple, Amazon and RIM. "I don't think they're good values at this point even in their current state."
Caughey said she favors industry stalwarts like International Business Machines Corp and Oracle Corp due to their scale, diversity of operations and overseas strength. IBM trades at about 12 times 2008 earnings, Oracle at 14 times fiscal 2009 earnings and Microsoft Corp at about 15 times fiscal 2009 profits.
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