Shares of large-cap technology companies are poised to outpace the market as their stock prices are starting to reflect more stable demand -- illustrated by analysts’ earnings expectations.
The Standard & Poor’s 500 Information Technology Index -- with Apple Inc., Microsoft Corp. and 63 other members -- has risen 9 percent in the past three months, compared with a 4.2 percent gain in the S&P 500. That follows 18 months when the tech group lagged behind the benchmark index by 18 percentage points.
The shift reflects investors who see business improving for many of these companies, including those specializing in software or hardware, said Walter Todd, who oversees about $950 million as chief investment officer of Greenwood Capital Associates LLC in Greenwood, South Carolina.
“We recently started looking at some tech companies based on this premise: that their earnings are going to rise faster than the broader market,” he said.
Microsoft, the world’s largest software maker, reported today that second-quarter profit and revenue exceeded analyst projections, sending its stock up about 2.5 percent as of 4:30 p.m. in New York.
Widest Differential
The performance of tech stocks historically has tracked analysts’ earnings forecasts on a relative basis. This relationship broke down in the past year, reaching its widest differential in April. Now the gap is starting to close: Tech stocks are catching up with the earnings outlook, which has been relatively stable in the last three months, Todd said.
David Katz, who oversees about $975 million as chief investment officer at New York-based Matrix Asset Advisors Inc., anticipates industry expenditures will accelerate this year. That’s based partly on a forecast from industry researcher Gartner Inc. that shows total information-technology spending increasing 3.1 percent worldwide to $3.8 trillion, following 0.4 percent growth last year. The broad measure includes hardware, software and services.
“In a better global economy, with rising capital spending in the U.S.,” this year probably will favor “old technology” companies such as Hewlett-Packard Co., Cisco Systems Inc. and Microsoft, Katz said.
Improved Investment