Your Investments: Technology likely will lead market rebound

"The prospect of reducing energy costs while improving IT performance and manageability is very compelling," says Focus analyst.

By AARON KATSMAN
As global financial markets continue to reel and drop, investors with a bit of foresight should start thinking about how they can adjust their portfolios and potentially benefit from a turn in the market. As I have mentioned in previous columns, the state of corporate America is very strong right now, and that is especially true in the technology sector.
For investors looking to be correctly positioned for a market rebound, it makes sense to look at companies that have shown improved earnings and, even more importantly, expect stronger growth moving forward. The technology sector seems to fit the bill the best.
According to Michael Dortch, an analyst with Focus, a hi-tech research group: “Recent upticks in corporate IT spending are catching up with investments that were delayed by the worldwide economic unpleasantness. The prospect of reducing energy costs while improving IT performance and manageability is very compelling.”
Others are even more bullish on the sector. Steven Bulwa, market commentator and former contributor to TheStreet.com, wrote recently: “We are on the cusp of a new bull market in technology. There are so many tremendous developments in areas like new medicine, diagnostics, advanced manufacture and design, alternative energy, nanotechnology and communications, that I believe we are entering one of the greatest periods of technology innovation and investing in our history.”
“All of this equals very interesting and exciting times for our planet, and very rich opportunities to make money investing in technology,” he wrote.
The pundits out there will say that we have heard this story before and that investing in this sector is like throwing good money after bad. No one denies that if you pick the stock with the next “hot technology,” you will make a lot of money. The problem is that for every one of those stocks there are many more with cool technology that end up providing nothing but losses for investors. Just go back a decade and look at the hot hi-tech stocks during the Internet bubble and where most of them are now.
DISCIPLINE
It would be foolish for investors to solely invest in hot hi-tech stocks. Just like it’s silly to invest in any portfolio that is made up of only faddish or in-fashion stocks, a tech-specific portfolio that adheres to that philosophy could spell doom.
A here-today-gone-tomorrow portfolio is no way to build wealth. Rather, if an investor is disciplined, he can take advantage of the tremendous growth in hi-tech spending and invest in companies that are the recipients of venture capital.
Not that I am recommending investing in Cisco Systems; I am not. But CEO John Chambers is a man to listen to, and when he says business is very good, it’s very good. Chambers, according to a Marketwatch.com article, “was one of the first captains of a bellwether tech giant to call attention to the trend, when he detailed a 63% jump in earnings. The chief of one of the world’s mightiest tech empires declared that ‘tech spending is clearly on fire and going in the right direction.’”
STRATEGIC INVESTING
If an industry is “on fire” and “headed in the right direction,”investors should look to add allocation to it. There are many techstocks that have matured over the years and now even pay substantialdividends. In looking for these types of investments, you aren’tnecessarily looking for a game-changing technology that will quadruplein price. You want to find a solid growth story with increasingdividends.
This may be slightly more aggressive than your favorite company thatproduces soft drinks or breakfast cereal, but it could also potentiallylead to more growth in your portfolio.
Speak with your financial professional to see if it makes sense to add exposure to technology companies in your portfolio.
aaron@lighthousecapital.co.il
Aaron Katsman, a licensed financial adviser in Israel and theUnited States, helps people who open investment accounts in theUS.