Speaking to friends, the $1 trillion question that keeps arising is "when do we start buying?" Astute investors, they've certainly lightened up on their exposure to stocks over the past few months and have cash sitting on the sidelines. "Are we making a bottom here?" they ask, readying themselves to start moving back into the stock market. As asset allocation and modern portfolio theory tells us, stay in the market, be diversified, and don't trade on emotion. The problem is that investors doing that since 2000 would have seen little investment returns in exchange for taking on stock market risk.So, with this info in hand, more aggressive investors are looking to spot a bottom and make a buck along the way. So, it's interesting to read weekly Barron's article out over the weekend entitled For the Bold Investor, This Could Be the Time to Buy Tech Stocks. The article, written by one of this author's favorite journalists, Eric Savitz, looks at Oracle's (NASDAQ: ORCL) recent performance as indicative for what's happening to tech. Citing Oracle's Chief Financial Officer Safra Catz, Savitz explains that deals were getting harder to close with some business slipping into the May quarter. Tough times for tech.
So why does Barron's think we should start buying now?
Valuations, really.
Savitz looks at search engine giant, Google (NASDAQ: GOOG). The tech power has suffered as analysts have cut estimates and investors are nervous of how Google will perform in a recession. But on a valuation basis, Savitz makes a case that for investors who can stomach volatility, buying Google growing at 25% at 1x its growth rate could be a savvy move.
There's more: Barron's quotes a sell-side analyst who believes we may be nearing a bottom. Regardless, tech stocks are down more than 25% already and have underperformed. This analyst believes that we're setting up for an extended period of outperformance for tech shares as the market turns around.
The money line: "The conundrum is obvious: On the one hand, it seems loopy to be buying tech stocks when companies are only now conceding their vulnerability to a downturn. But for investors not susceptible to motion sickness -- for those with a time horizon measured in years, not months -- the moment to start nibbling has arrived."
Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund. Author is long GOOG stock.
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Reader Comments (Page 1 of 1)
4-03-2008 @ 1:51AM
Gumby said...
It sounds good to me as long as I need to make sure that no one is using my money i put in those stocks for own accounts elsewhere...