Mike Conlon
Senior Instructor
instructor@mywealth.com
Global Crisis? Not for These Stocks
In the midst of what has been deemed the greatest financial crisis of our time, there is one sector that has come back with a vengeance. This sector is represented by companies with strong balance sheets, excess cash on hand, and limited exposure to toxic assets. What is this conservative sector, you may be asking yourself? Technology!!!
A lot has changed since the go-go days of the late nineties, when tech stocks soared to amazing heights and then crashed and burned when reality set in. To learn about this paradigm shift, click here. Today, the reality is that tech stocks are here to stay.
What were once speculative and highly volatile companies are now mainstays in our economy. This is part of the natural evolution of tech companies, that the winners survive and prosper, and the losers get acquired or eliminated.
The Powershares QQQ (QQQQ), an ETF that replicates the Nasdaq 100, has become synonymous with tech stocks, and has enjoyed a nice rebound in 2009. The (QQQQ) is up roughly 10% in ’09, and up roughly 25% from its march lows (see chart below)
Conversely, the S&P 500 SPDR (SPY) ETF is down roughly 4.5% in ’09. (See chart below)
To learn more about how to read charts, click here.
There are a few reasons why tech is doing so well and out-performing other sectors of the economy.
1. Tech companies are very cash rich. They don’t need to borrow and some tech companies are actually paying dividends!
2. They have profits from continuing operations, maintenance, and licensing fees. A company that is experiencing difficult financial times is more likely to lay off workers than to bail on their tech spending!
3. Technology promotes efficiency. Increases in technological advances can help companies in trouble cut costs and become leaner.
4. Technology companies had no exposure to real estate, sub-prime, commodities, or any other area that crashed and burned like, well, internet stocks of the late ‘90s.
5. Technology has become a necessity. How would an average person be able to function if they weren’t able to log onto their PC (DELL), sync their Blackberry (RIMM) so they could Google (GOOG) the top 10 songs of the week to download to their IPod (AAPL) to share with …. Well you get the idea.
As you can see, there are many good fundamental reasons why tech has fared so well so far this year, while other sectors have struggled. Whether or not the market bottom is in or not is anyone’s guess. What we do know is that if this rally continues, it will be because technology is leading the way!
So get in a course today and learn about how you can identify which sectors can prosper in any economic environment!
