Safe BetsBy Reuters - | Posted 2008-08-29 Print
This year, with high energy and food prices, the housing slump and credit market crisis muting consumer demand, Wall Street is bracing for a subdued performance from the technology industry--gadgets, devices, gaming consoles and computers--even during its busiest manufacturing season for the Christmas-spending holidays.
Even the most optimistic money managers say investors should not make risky bets, and instead recommended safe blue chips such as Microsoft Corp (MSFT.O: Quote, Profile, Research, Stock Buzz), IBM (IBM.N: Quote, Profile, Research, Stock Buzz) and Cisco Systems Inc (CSCO.O: Quote, Profile, Research, Stock Buzz) until there is clear evidence of an economic recovery.
"I don't think this is a market where you get paid to be a hero," said Bernard McGinn, president of McGinn Investment Management Inc, who manages $55 million of investments including Hewlett-Packard Co (HPQ.N: Quote, Profile, Research, Stock Buzz) and Nokia and expects a 10 percent to 15 percent tech share rally this year.
Some investors were concerned about the strengthening dollar, which may boost the U.S. economy but crimp overseas sales that have largely been strong for the tech sector.
"The problem will be if our dollar starts rising and the economy does not rally. I do think there's a danger of that happening," said Keith Springer, president of Capital Financial Advisory Services, who manages about $60 million of investments mostly for individuals. He likes Oracle Corp (ORCL.O: Quote, Profile, Research, Stock Buzz) and Microsoft but notes that nobody is immune to a bad market.
The weak economy already weighed on the tech sector last year, with the S&P Tech 45 index rising only 5 percent in the last four months of 2007 compared with a 10 percent rise over the same period in 2006.
Some fund managers who expect inflation to ease and housing prices to stabilize say that even early indicators of a recovery in 2009 would make consumers and companies comfortable enough to invest in the latest technologies later this year.
Fund manager Robert Stimpson at Oak Associates, which manages $1.2 billion in investments, argues that prospects are better this year as he expects price declines for commodities such as oil to help to turn around the economy.
"Since most commodity prices have corrected sharply over the last 2 months, it suggests inflationary pressures should continue to subside," he said. "The Fed might be able to lower interest rates to stimulate the economy, the prospects for tech and growth stocks does look better."
Stimpson blamed the timing in Dell's product cycle for its weak results, and said Research In Motion (RIM.TO: Quote, Profile, Research, Stock Buzz) and Apple were good bets as they have hot new gadgets ready for the holidays.
Shareholders of Corning Inc (GLW.N: Quote, Profile, Research, Stock Buzz) could also be in for a windfall because it supplies glass used in flat-screen televisions that are often a hit around the holidays, he said.
"If a technology company doesn't have a new product coming out it could languish in this economy," Stimpson said. "This is not an environment that lifts all boats."
(Editing by Derek Caney)
© Thomson Reuters 2008 All rights reserved
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