RSSTech ETFs: Software and Hardware For Aggressive Investors
By Gary Gordon | October 01, 2008 | 3:11 PM | 0 Comments
Oracle has a solid model for growth in the database software world. Microsoft is buying back its shares as well as increasing its dividend. IBM has done just about everything right as the consultant to the stars.
And yet? The tech sector has still been hit hard by recessionary forces.
Part of investor fear may be attributable to the tech blow-up of 2000-2002; part may be due to the belief that a global recession today means that corporations will scale back plans for improving tech infrastructure.
Either way, some areas have emerged as potential leaders for early stage recovery in the next business cycle. Here are 2 ETFs where the underlying companies may be collectively inexpensive based on earnings potential.
1. iShares Technology Software Index Fund (NYSE: IGV). Microsoft, Oracle, Symantec. Top holdings like these provide extraordinary competitive advantages in operating systems, database dominance and software security.
Granted, few businesses can escape the wrath of economic doldrums. Yet this fund even has a high stake in video gaming through Electronic Arts and Activision – leaders in the recession-resilient video game market.
iShares Technology Software Index Fund (IGV) tracks 42 companies, with 60% of the fund's movement attributable to the top 10 companies. In volatile times like these, price movement that's 1.5x the broader market may shake investor faith. Nevertheless, it’s difficult to go entirely astray when you're purchasing the highest quality companies with clear industry leadership.
2. Semiconductor HOLDRs (NYSE: SMH). Nearly 60% of this hardware fund is concentrated in 3 companies... Intel, Applied Materials and Texas Instruments. Still, no matter how one looks at it, chip stocks are always among the first to barrel forward in an economic revival.
What if you don't believe we will get out in front of the economic downturn? Even then, it's hard to ignore the relative price bargain on companies that still have double-digit growth rates. A recent screen at Morningstar showed that Intel had a P/E of 15 and Texas Instruments had a P/E of 11. Both had Price-to-Book ratios of 2.7. These companies have not been this cheap since 1995.
The question that one might want to ask about the exchange-traded basket known as the Semiconductor HOLDRs (SMH) is this: Is a 40% decline from 2007 market highs to 2008 3rd quarter new lows attractive enough to get in? Possibly. After all, the stocks in the bundle aren't overpriced… it's recession uncertainty that is keeping buyers at bay.
There are a few tech ETFs that stand to benefit the most from an Obama victory. You can check that out right here.
Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.
| 
|
