Jubak's Journal
Your new road map to investing in tech
Pay attention: Intel, Cisco and the Fed are showing you where to invest in tech. I’ll point out 4 key road signs -- and 3 tech stocks they lead me to.
By Jim Jubak
Investors got a welcome pop in technology stocks in the middle of this week -- and a much-needed road map for investing in the sector from Cisco Systems (CSCO, news, msgs), Intel (INTC, news, msgs) and the Federal Reserve.
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First, Cisco said that business in its part of the technology industry is horrible and still getting worse. Then Intel piped up: Remember that communications gear is only one part -- if a major part -- of the technology sector. Our communications businesses are doing badly, just as Cisco said, but we’re seeing good progress in our core PC business. In fact, we think that the second quarter could mark the bottom for PC-related sales. And finally, the Federal Reserve threw in its own two cents in the form of a 50-basis-point interest rate cut. Intel may be right about its PC business. After all, a lot of sales in that sector are to individual consumers and the numbers show that consumer spending is holding up just fine, said the Fed, but we’re really worried about the recession in spending on capital equipment that Cisco is feeling. That is, continued the Federal Reserve, the real danger to the U.S. economy and we’re going to cut interest rates to try to turn that around.
Here’s how that translates into an investing road map, in my opinion.
Improving fundamentals -- such as growth in new orders, declining inventories and increased visibility -- from some technology companies will help complete the bottoming process that’s now going on in technology stocks.
This bottoming makes it a good time to begin building positions in technology stocks that are likely to be among the beneficiaries of the first signs of improving fundamentals. Semiconductor equipment stocks form one group that deserves a long look, and I’ll end this column by talking about three buy candidates: Applied Materials (AMAT, news, msgs), Novellus Systems (NVLS, news, msgs) and Cymer (CYMI, news, msgs).
The fragility of the improvement at companies such as Intel makes it a bad idea to chase stocks that have sharply rallied. There should be enough disappointments ahead to let investors who miss one rally buy in on a temporary dip.
And it’s still too early to put money into communications technology stocks. We almost certainly haven’t seen the end of bad news in this group. |
