When Will the Rally Begin?

Monday's tech stock rally is officially over:


Closing Price 10/13

Closing Price 10/15


Dell (Nasdaq: DELL  )




Cisco (Nasdaq: CSCO  )




Taiwan Semiconductor (NYSE: TSM  )




Sources: Yahoo! Finance.

Message received, Mr. Market. The meltdown will get worse before it gets better. But when will enough be enough? When my imaginary dog switches to cat food? When Bill Maher joins the priesthood? When Steve Jobs switches to the open collar?

Maybe it's just me but, as a close observer of the tech world's top disruptors -- from virtualization virtuoso VMWare (NYSE: VMW  ) to content delivery king Akamai (Nasdaq: AKAM  ) -- I'm more enthusiastic than ever about investing in great growth stocks.

Stock market stories that you're ignoring
That's because tech firms are using the current market malaise to position themselves for long-term profits. Consider Intel (Nasdaq: INTC  ) . A strong quarter notwithstanding, the chipmaker is developing a capital spending plan to move its manufacturing process from 45 to 32 nanometers by 2010. Ambitious? Sure. But Intel has roughly $10 billion in net cash and, in Advanced Micro Devices (Nasdaq: AMD  ) , a competitor that's on the defensive. Now is the time to go for the jugular.

Oracle is another compelling growth stock story. CEO Larry Ellison, also flush with cash, says that he'll keep shopping for bargains. IBM, meanwhile, previewed heroic third-quarter results last week.

Growth stocks did better than value for the six years between 1994 and 2000, as technology stocks soared. Value stocks have been winning since. Now, as earnings growth begins to show signs of slowing, cash-rich growers like Intel -- trading for 12 times trailing earnings with a 3.50% dividend yield -- have become outstanding buys.

Be a rebel with a cause
I believe that because I've seen tech stock crashes before. During the summer of 2006, our Motley Fool Rule Breakers portfolio was bleeding red and the quest for the next great multibagger was stuck in the mud.

No longer. Even with the downturn, our average pick is beating the S&P 500 by more than 6 percentage points. What spurred the turnaround? My analysis points to three traits shared by our biggest winners:

  1. A competitive advantage in an important, emerging market.
  2. A sustainable business growing at an above-average pace.
  3. Top-flight mangers that have a clear vision for what they wish to accomplish.

So, yeah, the economy stinks. Tech firms will continue to be affected. And yet my Rule Breakers teammates and I consider now to be a time of maximum opportunity, a time when multibaggers in the making spring forth.

We also believe many of these rebels reside in Silicon Valley -- and we'll soon be headed there to meet them. Want to know what they're talking about? Sign up here to receive our updates and detailed findings, absolutely free.

This article was originally published on November 14, 2006. It has been updated.

Fool contributor Tim Beyers owned shares of Taiwan Semiconductor, IBM, Oracle, and Akamai, which, along with VMWare, is a Rule Breakers recommendation. Dell and Intel are Inside Value picks. The Motley Fool's disclosure policy is a rebel with a cause.

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