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Titans of Tech

Toronto, December 2, 2013
By John Stephenson

Markets are running hard with the S&P 500 and Dow hitting all-time highs.  Also, breaking a ceiling of sorts is the Nasdaq, which finally cracked through the 4,000 level for the first time in 13 years, this past week.  Despite achieving this latest milestone the Nasdaq is still 20% below its dot.com-fueled highs, with the information technology (IT) sector lagging behind the broader S&P 500.  But a closer inspection of the data suggests that it is not so much that technology is out of favor, but rather it is a rotation within the technology sector toward new upstart companies and away from the established players.  Small cap tech names have been on fire while the large cap tech stalwarts have been lagging the market on a year-to-date basis. 

Many of the most vaunted names in tech are trading at discounted multiples to the broader market because they are seen as producing products that are commoditized.  PC manufacturers, microchip makers and mainframe providers are out of favor while anything to do with social media, the cloud or mobile are the new “it” companies.  IBM is case in point.  Last month the tech giant approved a $15 billion increase in its share repurchase program, which caused the shares to spike 2.7 percent on the day of the announcement.  But the announcement followed closely on the heels of the company posting a decline in sales for the sixth straight quarter. Despite IBM’s efforts to return cash to shareholders to bolster the share price, the stock is down six percent on the year.

 

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