I am not a billionaire, and I don't live in Nebraska, but I like to think that master investor Warren Buffett and I have a lot in common. I don't have nearly his track record, of course, but like Warren, I like Cherry Coke, enjoy a good bargain, and don't really understand tech stocks. They're hard to value and even harder to differentiate. And -- again, like Warren -- that has kept me from investing in them.
But my inner contrarian's interest is getting piqued with all this tech sector underperformance of late.
Go down
This recent underperformance shouldn't be news. Tech hasn't beaten the market for years.
Since the market began to recover in 2003, for example, small caps, as measured by the Russell 2000 index, are up nearly 90%, and the energy sector, as measured by iShares S&P Global Energy Sector, is up more than 100%.
Tech, on the other hand, has moved pretty much in lockstep with the S&P 500. iShares S&P Global Technology, which counts Cisco Systems (NASDAQ:CSCO), Hewlett-Packard (NYSE:HPQ), Intel (NASDAQ:INTC), and Motorola (NYSE:MOT) among its top holdings, has posted just 50% gains over the past three-plus years.
And stay down
Since the beginning of 2006, we've also seen some of the tech sector's brightest names get dunked for slowing growth. Dell (NASDAQ:DELL) is down nearly 20% this year, and eBay (NASDAQ:EBAY) is down nearly 30%.
Those are great businesses and leaders in their fields. Moreover, they stand to benefit from the continued growth of the Internet and the digitalization of our world. As Intel CEO Paul Otellini and Microsoft (NASDAQ:MSFT) CEO Bill Gates wrote in a Wall Street Journal editorial recently, "[T]he PC will be even more important in the years ahead. ... And every year -- every month -- new innovations in hardware and software are unveiled that ensure the enduring relevance of the PC."
Or rebound?
This is not to say that the entire tech sector is a sure thing, of course. Prices are dropping while competition is increasing, giving rise to the notion that computers are now a commodity. Moreover, many tech stocks can still be considered "expensive" relative to cash flows.
But there's growth in them hills. People using the Internet today are quickly integrating it into their daily lives: shopping, talking, and watching video clips of a Dalmatian riding a bike. And then there are all the people who aren't even using the Internet yet. In China, for example, estimates note that less than 10% of the country's 1.3 billion population is online.
The Foolish bottom line
Now is certainly a better time to buy tech stocks than 2000. That said, the best gains will be realized by investors who find the companies poised to benefit from the commoditization of the PC and worldwide user growth. These are companies such as eBay, which control their e-commerce niche, as well as Chinese Internet portals, content providers with market share, and service companies that make the Internet fast and reliable.
If you're interested in learning more about tech's bright future and about some of the most innovative companies changing the landscape in the industry, join Fool co-founder David Gardner's Rule Breakers service free for 30 days. From the monthly Early Adopter Roundup to the specific stock recommendations, it's a very interesting and potentially lucrative read -- particularly for a guy who doesn't know a whole lot about tech. Click here to learn more.
Tim Hanson does not own shares of any company mentioned in this article. Intel, Dell, and Microsoft are Inside Value recommendations. Dell and eBay are Stock Advisor recommendations. No Fool is too cool for disclosure ... and Tim's pretty darn cool.
