Summer isn't usually prime time to load your portfolio with tech stocks, but now actually might be an opportune time to start sifting through some tech names while you are sitting on a sandy beach.
Tech stocks are looking relatively inexpensive these days for those who have the luxury of not needing immediate results and have a medium-term outlook.
"Our basket of 30 secular growth tech companies is near decade lows both in terms of forward-looking price-earnings ratios and their premiums relative to mature technology stocks," says Bill Whyman, a technology analyst for ISI Group in Washington, D.C.
The ISI "growth basket," which consists of the 30 top-performing tech stocks based on a growth score formula devised by the firm, is trading roughly 17 times forward-looking earnings, which is four points lower than historical averages of 21. "It suggests that growth-tech is historically cheap," Whyman says. ISI assigns a growth score to about 160 technology stocks.
Companies with higher growth scores, such as computer 
game-maker Take-Two Interactive, tend to outperform the broader market based on historical comparisons. Stocks with rising growth scores, such as Amazon.com, tend to outperform those names with falling growth scores, such as Nokia, according to the ISI tech stock model.
It's All About Growth
Whyman also looks at what he calls the "growth premium," which is the gap between forward price-earnings ratios of growth companies, such as Netflix, and mature tech stocks, such as IBM. Right now, the premium for growth tech is four points higher than historical comparisons, which are hovering near multiyear lows. The gap is reasonably small as a result. Usually, the premium gap is much wider because investors traditionally are willing to pay higher prices for high-octane tech stocks, Whyman explains.
ISI's basket of the 30 highest-rated growth companies is up about 60% since 2000, while a comparable index of the 30 lowest-rated, or most mature tech companies, is down nearly 60% during that time frame.
The good news for those investors playing at home is that it's not too late to get into the tech stock game because growth tech is still affordable. While growth scores do a decent job of predicting stock performance, they aren't foolproof, Whyman warns. Yet the top 10% of the companies in the firm's growth score calculation have outperformed the bottom 10% nearly every time.
But in the past two quarters that pattern didn't hold true. Some mature tech names that had been taking a beating, such as Hewlett-Packard, have been performing well while some growth stocks have lagged. But no need to worry, "We don't believe this is sustainable," Whyman says. (continued...)
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? 2013 USA TODAY under contract with MarketWatch. All rights reserved.
Source: http://www.mobile-tech-today.com/story.xhtml?story_id=88666
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