The sector has gotten thrashed over the last few months, but these technology names are smart contrarian buys because of their strong overseas presence, says Elliott Gue of Personal Finance in this exclusive interview with MoneyShow.com.
The tech sector seems to be kind of left for dead these days, but you seem to think that maybe there are some good opportunities in there.
Actually it’s a sector with an awful lot of growth, and a lot of these companies have extraordinarily clean balance sheets.
Another thing to look at is, it’s one of the highest weighted sectors in terms of international exposure in the US, so even the US companies—big US tech firms, the IBMs (IBM) and Qualcomms (QCOM) of the world—they garner the majority of their revenues from outside the United States. Even if the US economy is not growing or not seeing much growth, they can still see a lot of growth in places like China and India.
One of my favorites, for example, is Qualcomm. They only get 5% of their revenues from the United States, and most of the growth in their core market of smartphones is coming from places like China and India.
Is that growth coming from there, is that a lower margin growth than what’s coming, maybe, from the US?
Traditionally, it has been. But one of the things that we heard from Qualcomm lately is that they’re actually seeing very strong growth in high-end smart phones in some of these emerging markets.
In the past, even when you talked about smartphones in a place like China or India, you were usually talking about lower-end smartphones than what might be selling in the United States—so not Apple’s (AAPL) iPhone, but cheaper phones made by, maybe Nokia, which have some functionality of a smartphone but not the full functionality. We’re now seeing that a lot of those countries are actually seeing pretty strong growth in the higher end.
Another opportunity for Qualcomm specifically, I think, is the tablet market…sales of tablets like the obviously popular Apple iPad and now the iPad 2. They’re really surpassing netbooks, and really, laptop computers. They’re sort of filling a niche somewhere between a cell phone, a smart phone, and a laptop or a PC.
They’re seeing very strong growth outside the US. Last year, most of the tablet market was in the US. By 2015, I think about a quarter of sales for tablets are expected to come from the US, with the rest coming from outside.
Qualcomm makes chips that are used for high-speed Internet access in those as well.
When you’re speaking about investing in tech, are you looking mostly at the mobile space, or are you looking at other areas too?
There are a number of different areas out there. Another thing to look at is, what are companies spending on? What’s enterprise spending? If you look at, for example, recent GDP reports, you’ll see that some of the strongest contributors to upside and GDP is companies going out and spending on software, technology, and equipment.
I think what you’re really seeing there is kind of a catch-up to a long period of under-spending. These companies obviously overspent during the tech boom in the late ’90s, then there was sort of a hangover in the early part of the last decade, and they really never ramped up their spending again until very recently. They’re upgrading their networks, and they’re upgrading their computers, and companies like IBM benefit from that.
Obviously most of IBM’s income now comes from services, not hardware. People tend to think of them as a computer maker, but they really don’t do that anymore…they’re all in services and software. They’re seeing very strong growth and enterprise spending.
What about Microsoft (MSFT), is that a stock that you like?
Microsoft is one of those tech stocks that sort of has gone ex-growth. They’re seeing, obviously, a lot of competition in their core market for operating systems.
They’re kind of trying to diversify by making acquisitions and buying new companies, but it’s not really a company that we focus on, because I don’t see the real strong growth potential that you’re seeing from some of these other companies. Either on the IT-services side, or connected more to the mobile activity.
Could you give us one more tech buy?
Absolutely. We mentioned Qualcomm. We mentioned IBM. Another company, which is kind of quasi-tech, that we like a lot is American Tower (AMT).
This is a company that owns towers, mobile cell phone towers. They’re going to convert to a REIT this coming year, a real estate investment trust, which I think could be a catalyst for upside in that stock.
If you look at it, all of the proliferation of all these devices means we have to put up more cell towers—we have to put up more to serve all these high-speed devices. And AMT is going to be a big beneficiary in that they own these towers and lease them out to the major cell-phone operators.
