Technology has changed the game for hockey teams and investors alike.
For example, video and scouting reports are readily available on phones, tablets, and other mobile devices, accompanied by advanced metrics and data analytics for individual players, different line combinations, and much more. Similarly, investors can research stocks and make trades at the touch of a button on their cell phone and other devices.
This compares to years ago when one of the only ways you could get a sense of your opponent was to send a scout in person. For investors, if you wanted to make a trade, you had to make a phone call to a broker or talk to them in person during business hours.
Shifts in technology trends have changed the game and created dynamic opportunities for investors. This is one reason why Fidelity’s most recent quarterly sector scorecard gives the tech sector high marks. Historically, tech has done well at this point in the business cycle. It also looks strong from a fundamental, relative value, and momentum perspective, as of early 2015.
Needless to say, if you are interested in tech, opportunities abound. But with stocks near record highs, it could be time to be choosy. Here are four timely strategies to consider:
1. Value propositions in tech
The Fidelity stock screener can provide you with the capability to identify opportunities in the tech sector, based on numerous filters of your choosing. With stocks trading near all-time highs, value can be an important criterion for some active investors.
Currently, the tech sector is trading at an 11.9x price-to-cash flow multiple (P/CF).1 That’s the highest it has been since 2009, but is still well below pre–financial crisis levels, which were in the mid to upper teens, and is also well below the 2001 high of 26.7x.
As of February 27, 2014, large-cap tech stocks with the lowest (i.e., the most attractive) price-to-cash flow ratio in the market are:
- Print solutions firm Xerox (XRX)—6.29 P/CF ratio
- Semiconductor company Micron Technology (MU)—5.78 P/CF ratio
- Internet portal Yahoo (YHOO)—5.38 P/CF ratio
- Electronics equipment maker Hitachi (HTHIY) 4.92 P/CF ratio
2. Highly rated tech stocks with strong cash flow growth
In technology, cash flow can be a particularly important metric because it may help provide a better look at the future prospects of a business, compared to earnings. Another way to potentially get a sense of how a company may perform is to see how analysts generally rate the stock, given that they spend a lot of time evaluating companies they cover.
As of February 27, 2015, tech stocks with the highest cash flow growth rate in the market (trailing twelve months vs previous trailing twelve month period) and a very bullish Equity Summary Score (ESS)—a composite of independent research ratings provided by Starmine—are:
- Digital media solutions provider Avid Technology (AVID)—10 ESS out of 10
- Solar manufacturer Canadian Solar (CSIQ)—9.7 ESS out of 10
- Semiconductor testing company Chipmos Technologies (IMOS)—9.5 ESS out of 10
- Networking equipment supplier Brocade Communications Systems (BRCD)—9.3 ESS out of 10
- Payment processor Higher One Holdings (ONE)—9.1 ESS out of 10
3. Tech stocks for value and income
With the 10-year Treasury yield still historically low (2.1%), some investors may seek other sources of investments that generate a steady stream of income payments. Stocks have been one popular option; the S&P 500 dividend yield is roughly 2.1% as well, as of mid-February 2015. Of course, you should carefully weigh the risks and rewards of higher yielding investments.
Compared with other sectors, tech companies frequently reinvest a larger percentage of their revenues back into their businesses in order to grow and develop new technologies. For this reason, tech stocks have not typically featured attractive dividend yields. However, this does not mean you can’t find tech stocks with relatively strong income components.
As of February 27, 2015, large-cap tech stocks with the highest annual dividend yield, the lowest price-to-book ratio (P/B), and the highest return on equity (trailing twelve months) are:
- Video solutions provider Concurrent (CCUR)—7.8% dividend yield
- Financial media company TheStreet (TST)—4.9% dividend yield
- Software consulting services firm Formula Systems (FORTY)—4.5% dividend yield
- Office machines manufacturer Canon (CAJ)—4.1% dividend yield
- IT services company Computer Task Group (CTG)—2.9% dividend yield
4. Tech stocks with technical strength
Active investors who prefer to take a more tactical, chart-driven approach might consider trading tech stocks that are exhibiting a specific technical pattern that fits their strategy.
For bullish investors, internet solutions Ixia (XXIA), cloud security company Qualys (QLYS), wealth management solutions provider Envestnet (ENV), and revenue management solutions provider Model N (MODN) show up in the “Bullish Chart Patterns” expert screen, provided by Zachs Investment Research, of February 27, 2015.
For bearish investors looking for short ideas, information technology and knowledge process outsourcing company Syntel (SYNT) and communications technology company Ubiquiti Networks (UBNT), appear in the “Falling Stars” screen, provided by Recognia.
As always, the screens discussed here are just a starting point. You should conduct your own research and determine how any potential stock or bond purchases fits with your time horizon, financial circumstances, and risk tolerance.
The Equity Summary Score is provided for informational purposes only, does not constitute advice or guidance, and is not an endorsement or recommendation for any particular security or trading strategy. The Equity Summary Score is provided by StarMine, an independent company not affiliated with Fidelity Investments. For more information and details, go to Fidelity.com.
As with all your investments through Fidelity, you must make your own determination whether an investment in any particular security or securities is consistent with your investment objectives, risk tolerance, financial situation and your evaluation of the security. Fidelity is not recommending or endorsing this investment by making it available to its customers.
Past performance is no guarantee of future results.
Investing involves risk, including risk of loss.
Stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments.
Because of their narrow focus, sector funds tend to be more volatile than funds that diversify across many sectors and companies.
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