Tech Stocks Signaling Sustained U.S. Growth: EcoPulse – Bloomberg 07-01-13

Salient to Investors:

Brian Jacobsen at Wells Fargo Advantage Funds maintains an overweight rating on tech stocks because their gains show a “hand off” is starting, as investors move into industries that could outperform benchmarks later in the economic expansion. Jacobsen says higher interest rates historically bode well for tech stocks, as they tend to lead the broader market during periods of rising short-term yields, and while everybody talks about big-cap names, small-cap companies are an interesting investment opportunity. Jacobsen says valuations are compelling – at 13 times forward earnings are at a similar level to the S&P 500 versus the historical average of 17.

In addition, consensus analysts’ estimates suggest “subdued” earnings growth in the next five years — about 12.5 percent versus 14.5 percent historically — so if these companies can exceed expectations it will push their stocks higher, Jacobsen said.

David Katz at Matrix Asset Advisors said the US economy is closer to being self-sustaining, and over the next 6 to 12 months, tech will be a good place to invest because tech earnings are cyclical and benefit from an improving economy.

Thomas Lee at JPMorgan Chase said tech stocks are their favorite because they offer a beta play on growth and attractive fundamentals and valuations are attractive. Lee said tech companies are less financially leveraged than peers in other industries, so are not as vulnerable to higher costs for servicing debt. Lee is less concerned about the industry’s global exposure, though significant weakness in emerging markets would pose the biggest risk to stock performance.

Stellakis at Technical Alpha said the relative performance of both the equal-weighted and small-cap groups shows that investors have more conviction in this industry now, while another bullish signal is that the equal-weight ETF reversed all of its relative weakness and ended up outperforming the market.

Erick Maronak at Victory Capital Mgmt sees plenty to be worry about in tech because there are two economies when it comes to spending – consumers have been unbelievably resilient but companies still remain gun-shy, and the economy is nowhere near where it needs to be for companies to go spending the amount of money they used to on computers and other equipment.

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