Technology didn't cause this bear market, but it can dig us out.
If you see things my way, then tech stocks will be a sector worth watching as we step into 2009 later this week. However, not every technology company is the same. They can't all rise, so which ones will be the better performers in the year ahead? I'm going to take a shot at pegging the winners.
So far this month I have taken a look at the one search engine I would like to own for the year ahead, as well as the one Chinese growth stock, one restaurant stock, and one leisure company. Today I'll turn my attention to tech.
Technology stocks obviously aren't recession-proof. As companies announce layoffs and scale back their IT budgets, everything from networking equipment makers to enterprise software developers suffer.
It doesn't get any easier on the consumer tech side, where emptier pockets translate into less money to spend on gee whiz gadgetry.
In short, technology isn't going to be an all-weather niche, but that doesn't mean that there aren't opportunities there for the taking.
And the runners-up are ...
There are plenty of companies that are doing things right during the market lull. Hewlett-Packard (NYSE: HPQ ) is turning PC lemons into lemonade, powered by three years of turnaround bliss under CEO Mark Hurd.
Hurd's success has come from improving HP's profit margins. You have to love a company that is bucking the trend of companies hosing down their profit targets. HP turned heads last month when it announced it would be topping market expectations. My concern with HP, though, is that we're reaching the point where Hurd won't be able to squeeze juice out of his margin-widening power.
Another compelling company is Research In Motion (Nasdaq: RIMM ) . The BlackBerry maker is still growing, even if it's no longer the toast of the smartphone town. The growth bears repeating, because RIM is trading at a ridiculously low 12 times this year's earnings.
Apple (Nasdaq: AAPL ) is another potential winner. I am concerned about the company's current quarter performance, given the booming popularity of cheaper netbooks this holiday season over the company's pricier MacBook. The 3G iPhones should carry Apple through shortfalls elsewhere, but Apple is a stock that I like later in 2009 rather than heading into its quarterly report.
Oracle (Nasdaq: ORCL ) is another company that I like a lot in 2009. The world's top dog in corporate applications has always had a nose for making shrewd acquisitions. The current climate is ripe for consolidation at attractive price points, leaving CEO Larry Ellison like a kid in a candy shop.
IBM (NYSE: IBM ) is an IT juggernaut that will never go away. Even in this tricky environment, you have to love the company's ads pitching the economic advantages of going green (through IBM consulting and products, of course).
With companies like IBM, Cisco (Nasdaq: CSCO ) , and Research In Motion trading at P/E multiples in the pre-teens, it's tempting to overlook the near-term negative impact that a meandering corporate economy will have.
And the winner is: salesforce.com
Even in a hamstrung market, information is a valuable commodity. You don't survive without technology, and it's why I believe in enterprise software despite the waning demand caused by layoffs and faltering corporations.
salesforce.com (NYSE: CRM ) isn't just a fast-growing enterprise software provider. The company is the poster child for cloud computing, serving up cheaper applications through a Web-stored interface.
The competition will catch up, so this isn't a cakewalk for salesforce. The company is also carrying a lofty valuation, priced just shy of 60 times next year's projected profitability. However, salesforce's earnings are expected to more than double this fiscal year, with an estimated 65% pop next year. That growth is coming at a time when companies are turning to salesforce to save money, and that won't change once the economy improves. If anything, an improving climate will be a catalyst for even bolder steps.
salesforce is fetching less than half of this summer's all-time highs, despite its growth prospects. Enterprise feast or famine, it seems as if salesforce is built to thrive no matter which way the economy goes in 2009.
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