Tech companies started 2012 on a roar; the tech-heavy Nasdaq saw its largest quarterly increase since 1991. Think about that for a minute: Last quarter saw a larger gain than any time during the dot-com bubble!
However, since the end of the first quarter, markets have been pulling back. The Nasdaq is down more than 6% in the past month. That's left many of the year's early highfliers ducking for cover. Yet many big winners still remain. I looked for the best-performing tech and telecom stocks with market caps over $20 billion to see which large caps have been performing best in 2012.
|salesforce.com (NYSE: CRM )
|Apple (NYSE: AAPL )
|VMware (NYSE: VMW )
|EMC (NYSE: EMC )
|Microsoft (Nasdaq: MSFT )
Source: S&P Capital IQ. Tech and telecom stocks over $20 billion in market cap at today's prices. Excludes companies without primary listings on U.S. exchanges.
Globally, there are 58 tech and telecom companies with market caps over $20 billion. So far this year, 31 have seen gains; 53% of the industry in the black is nothing to scoff at.
Yet it is interesting to note that Microsoft, which is at the bottom of this "top performer" list isn't beating the Nasdaq by an exceptional margin. The Nasdaq's year-to-date gains still stand at 8.9%, giving Microsoft just three percentage points of outperformance.
The reason for so many tech stocks' underperformance of their widely cited benchmark can be summed up in a word: Apple. The mobile giant from Cupertino might come in at No. 2 on this list, behind salesforce.com, but it makes up 18% of the Nasdaq, a figure that means it has about double the weighting of Microsoft and more than three times the weighting of Google.
Put it together and that shows why such a great percentage of tech and telecom stocks are underperforming the Nasdaq; the most heavily weighted stock is crushing the index by such a wide margin it's making outperformance difficult.
Looking down the list of stocks, we see salesforce managing to perform even though growth stocks have been getting sold off. Apple makes the list after a stunningly good last earnings report that was fueled by China. Speaking of China, while I excluded foreign stocks from the list, it's interesting to note that Tencent has returned 39% so far this year, slightly ahead of Apple's return. Another strong international performer not listed was Samsung, which has returned 15.8% so far this year on the back of its dominance over the Android smartphone market.
EMC and VMware are the best of big IT. As an investor who has routinely banged on the table to buy EMC and also owns the company, I'm glad to see the market finally pricing these two companies closer together. EMC owns 80% of VMware.
Looking forward, there are plenty of challenges to the tech industry in June and beyond. NetApp highlighted the challenging environment the industry is facing when it released earnings last week. The whole situation feels a lot like August of last year, when tech companies where cutting forecasts in the face of global macroeconomic headwinds.
Yet the industry bounced back then, and it's my belief that it'll bounce back even if Europe continues facing challenges that could last through the decade. There's just too much global growth for Europe to hold the greatest companies back long term.
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