Which Tech Stocks Will Lead the Way in This Recovery
Posted
Apr 19 2009, 07:10 PM
by
Louis Navellier
Rating:
Wall Street does a fantastic job of making the simple complex. The more Wall Street can confuse investors, the more dependent investors become on Wall Street for products and services. But the stock market is not really that complicated. If companies are growing, you can profit.
The key is to look at the business cycle. When the economy grows, business grows. That growth translates into stock values that go up. Now I like to find stocks that can make money even when their sectors aren't typically fueled by economic growth, like my 5 Hot Stocks in Ice-Cold Sectors.
But it's equally as profitable to look to sectors that get a tailwind from economic activity. Technology is one of those sectors right now.
Why? When an economy slows during a recession, demand for goods and services is put on the back burner. It may seem like demand disappears, but in fact demand is still there. That demand builds over time and ultimately fuels the economy when times are good again.
At the same time, difficult times spur innovation. The primary objective of that innovation is to improve productivity. Improved productivity is the lifeblood of any recovery. As such, productivity allows companies to get more out of less. That benefit then fuels more investment that, in turn, results in job growth and expansion of the economy.
The question then for investors is, what segment of the market is at the heart of innovation? The answer is obviously technology.
It is technology that has led the industrial economies to superior growth time and time again. It will continue to do so in the future. The ability to innovate and enhance productivity explains why technology stocks perform well during an economic recovery.
There is a reason the Nasdaq is in positive territory this year while the other major indexes remain below water. Will that trend continue?
The business cycle suggests that technology will, indeed, be the leader of this recovery. A handful of technology leaders release earnings this week, which will give us an idea of how technology is faring at this stage of the cycle.
IBM Should Beat Analysts' Expectations
First up to the plate was International Business Machines (IBM). IBM missed on revenue, but beat analysts' expectations on earnings. In recent months, IBM has demonstrated strength in its service business, despite weakness in the economy.
I rate IBM a B, or Buy.
Yahoo Not Worthy of Investment Now
Following IBM is Yahoo (YHOO) on April 21. With the company undergoing transition to new leadership, I do not have robust expectations for the second tier search and internet portal.
Google (GOOG) is the leader here, and I see nothing that happened in first quarter to show that YHOO has improved its status here. The only real reason to own YHOO lies in hope for a sale of the company or a joint partnership with Microsoft.
Pinning your investments on such hope is a mistake. I rate the stock a D or Sell.
Apple Has Bright Prospects
On April 22 the real superstar in technology, Apple Computer (AAPL), steps to the plate with its earnings report. The nonsense regarding the health of Steve Jobs has finally dissipated, and the stock has rallied hard in the last month.
That rally will continue with a strong earnings report. I rate AAPL a B or Buy.
Closing out the week on April 23 is Microsoft (MSFT). Slowly, but surely MSFT is changing its ways. The dominant position in operating software has been challenged by Google (GOOG).
Nothing fuels innovation like competition. I like what I am seeing from the company with respect to efforts in search and a willingness to cut its expense structure. This period’s earnings report will help shed some light on the effectiveness of those changes.
I rate MSFT a C or hold.
Investors can make profits by following the business cycle. Historically, technology is at the center of any economic recovery from recession. I don’t expect anything different this time around.
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Louis Navellier held positions in Apple, IBM, Google and Microsoft at the time of publication.
