23 September, 2007

Major Techs hit 52-Week Highs, Can the Rally Continue?

Post Fed Meeting, stocks have been on the upswing with new highs seemingly being made daily. While the market has rallied broadly, will we see a pause or can the ride continue? The Dow still sits about 200 points from its highs, Nasdaq 50 and the S&P about 30. In other words, there are still gains to be made towards the end of the year.

Technology has been on fire lately, as early earnings reports have been positive and multi-national companies are cashing in overseas as the US dollar weakens against other major currencies. Oracle (ORCL) had a great quarter and hit a 52 week high of $22.17 on Friday. It wasn't alone as many major tech players were just at or set new highs at the end of trading on Friday. Those companies included Google (GOOG) at $560, Ebay (EBAY) at $39, Cisco (CSCO) at $32, Amazon (AMZN) at $91, Research In Motion (RIMM) at $93, BIDU (BIDU) at $285.

So what's the trade for Monday and the rest of the year? Success will come to those companies that are getting a majority of their revenue in International currencies. Due to the US Dollar's record decline against the Euro, European business will drive profits this quarter and next. Big Tech is in good shape to continue to rally into the next round of earnings numbers due to and increasing dependence on Worldwide business for accelerated growth.

It's seemed lately that you can toss money into any tech stock and watch it rise, however, to truly pick a winner into the end of the year it's important to stand back and pick apart the business and the stock's valuation and determine which bet is best. It's vital to look at growth projections and current valuations to see that AMZN with a P/E in the 120s and a forward P/E of 51, is a much shakier bet than high growth GOOG or RIMM who sport forward P/E's in the 30 as the latter companies can seemingly growth into P/E's in the 40s and 50s. Steady Oracle and Cisco, who are experiencing revitalized business growth sport forward P/E's around 18, and a strong case can be made that these companies deserve P/E's in the 20s going into next year.

Technology has gotten its spark with the market rally over the last week and this sector will be a good one to be in come Christmas and the last calendar quarter of the year. Investors should take heed and come up with a criteria of which Technology companies should become the best investments. Here's a primer of things to look for when evaluating potential technology investments this holiday season.

1) Which companies will create, advertise, sell or re-sell the upcoming must-have gadgets or be involved in the back end of another record online-shopping season.

2) Determine which companies sport the largest percentage of International business.

3) Determine which companies have the ability to mold into their inflated P/E ratios so that any downside risk can be minimized with strong growth.

Disclosure: Author is long GOOG

No comments: