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Page 78
The Dispatch/Maryland Coast Dispatch
May 17, 2013
MONEY SENSE
Seeking Steady Growth In Technology Stocks
OCEAN CITY -- For the past decade or so, many investors seeking the potential for steadier growth have avoided the tech sector, thanks in part to its association with the dotcom bubble of the late 1990s and early 2000s. But today the landscape for technology companies is markedly different. In fact, investors seeking potential stability may well want to look to the sector – not necessarily to headline-making startups, but to more mature, nuts-andbolts companies that manufacture and market computers and information technology services. Having survived the tech bubble as well as the more recent recession, mature tech companies currently have strong fundamentals that could make them good opportunities in both bull and bear market scenarios, observes Savita Subramanian, head of U.S. Equities Strategy at BofA Merrill Lynch Global Research. "Some of the larger, cash-rich, less 'exciting' technology stocks could do well over the next few years," she says. For starters, Subramanian notes, many of the more fragile tech companies fell out of favor during the shakeout a little over a decade ago or in subsequent recessions. Our research indicates that the survivors have emerged hardier and healthier. As the cost of capital dropped from 2002 to 2007, financials, industrials and materials companies added more debt and expanded capacity. By 2008 those sectors "were the most leveraged and most geared to collapse during the credit crisis," Subramanian says. "Meanwhile, technology did the exact opposite. Tech took its lumps back in 2000 and spent the next seven years consolidating capacity. The sector generally avoided debt, so it ended up in back their own stock – potentially a better position." boosting its price – and to fund new Having stayed lean and mean, or expanded shareholder dividend technology weathered the recent programs. downturn better than many other Whereas technology stocks in sectors. In fact, SubramanStandard & Poor's 500ian notes, technology is the stock index have historicalonly cyclical sector whose ly traded at a 25-percent earnings have actually bepremium relative to the ovcome less volatile during erall equities market, today the past 10 to 15 years, owthe sector is trading at a ing largely to tech compaslight discount, largely benies' minimal debt and acause expectations of techbundant cash. "Many insector growth have been at vestors are surprised by all-time lows. "That's a very that," she says. different environment from BRIAN SELZER Indeed, like many other the past," Subramanian businesses that hunkered down dur- says. "Technology seems inexpening the recession, technology com- sive today. Even if you take out the panies have been accumulating tech bubble period, technology is cash. With their balance sheets cur- still trading at a 20-percent discount rently healthy and their profits sta- relative to its normal valuations." ble, many tech companies have reDespite decade-old fears about cently begun using this cash to buy investments in technology, Subramanian suggests that those seeking growth may want to take a new and unemotional look at the sector's hard numbers. Such investors should also look at their own expectations for growth and their risk profile. They may ultimately conclude that these potentially healthy, stable, mature, dividend-producing tech stocks have earned a place in their portfolios. – Brian Selzer Special To The Dispatch (A Merrill Lynch senior financial advisor, who can be reached at 410-2138520.)
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