Tech Stocks Is Hot – Are They?
In one form or the other, despite two bursts in late January and early April, the technology stocks have dominated the U.S. stock market since last year. Pundits regularly herald the death of this technology stock, predicting that their continued underperformance should continue, and citing the many reasons why such a trend should prevail. The truth is that technology companies have remained very resilient during these turbulent times. They’ve simply re-positioned, taking advantage of opportunities in strong sectors of the market-defining technology trends.
When you get right down to it, a good portion of the best technology stocks are actually good, established businesses with solid balance sheets. Some, like Applied Software International (ASX), have been around for decades. Others, like chip manufacturers like Applied Materials and Cisco, are young but growing at a rapid clip. Both of these companies have seen their costs drive down as they’ve expanded into new areas-particularly the consumer cloud computing area.
Partially, the reason these tech stocks have underperformed the market is because there hasn’t been enough of a run. Historically, technology stocks thrive on penny stock markets when smaller companies can’t afford to carry higher valuations. That means companies with great growth potential get squeezed out before they can grow to become stronger and, ultimately, generate bigger dividends. In these cases, companies with great future value can find themselves being stripped of their shareholder’s equity. And that’s where the problem often arises.
As we mentioned above, earnings are the key driver of tech stocks’ future value. Companies need to show strong profits to justify their higher valuations, which make them attractive to long-term investors. However, earnings growth can’t last forever. In fact, it’s already starting to come undone. So companies will have to work harder to convince investors that they’ll be able to sustain the gains from their current positions in the market.
On the other hand, earnings are declining in the technology sector due to a number of factors. One of the largest culprits is the impact of the global economy and its effect on IT. Global declines in China’s economy have had a direct impact on the availability of high-paying IT jobs. Even Microsoft’s recent decision to acquire its former rival, the Windows company, has had a negative impact on the sector. Even something as simple as the timing of an acquisition can have a major impact on earnings for short-term tech stocks.
But these losses don’t account for the overall decline in the technology stocks. Instead, tech names like Microsoft have actually performed quite well during the past year or so. They’ve risen from their all-time lows. The reason for this is fairly obvious: investors love to buy good name stocks that have a chance of rising even further in the future.
So, what’s the best strategy for picking top tech stocks? If you’re looking to make money on the rise of one particular stock, your best bet may be to take a look at that company’s track record. You can easily do this by looking at the technology space. Companies that are most popular in the technology space have shown that they can survive downturns. So if you see a company that has been around for a while, that has a strong track record, and has attractive products or services, you may be able to get in on the ground floor of their growth. This is the best way to make money in the technology stocks during the best times.
Of course, timing is everything. If you want to be a savvy investor, it’s important that you keep track of companies that are poised to perform well. If you spot companies that have promising futures, your best bet is to scoop them up at a cheap price. Then wait and watch for the prices to rise. While there aren’t many tech stocks like that on the market today, you can find some of them if you look long enough.