10 de junio de 2009

"Tech Sector: Growing in the Economic Crisis"

When the technology bubble burst at the end of the Millennium, the market meltdown was severe, but value investors managed to stay afloat. During the bear market that started in 2008, equity investors had no place to hide, but on a relative basis, growth stocks outperformed. That trend will continue says BCA Research because these companies tend to outperform in periods of weak domestic demand.

Periods of growth stock outperformance tend to be associated with deteriorating domestic demand indicators such as housing and consumption according to BCA Research. That description fits the U.S. economy like a glove. Moreover, narrowing profit margins are associated with outperformance in growth versus value.

The rise in the savings rate to 5.7% in April, a fourteen year high, is the type of secular environment that continues to favor growth stocks. Technology stocks are singled out by Merrill Lynch as the only sector with momentum, valuation and growth.

The technology sector has matured and is less risky than a decade ago. It has undergone a long period of consolidation, and companies are now cash rich with the highest cash to assets ratio of any S&P 500 sector. This is a good thing says Merrill now that credit is scarce.

Technology may have grown up but it hasn't stopped growing. It has shed a lot of the market risk of prior cycles and is set to take over market leadership from the "high beta" stocks that have led the current rally. The tech sector has the highest long term growth expectation based on analysts' estimates says Merrill suggesting a leaner, trimmer type of growth.

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