Sector focus: Investing in techonology

Growth technology stocks are ripe for picking, says Jeremy Gleeson, fund manager of the AXA Framlington Global Technology Fund. He shares his views on the sector.

Sector focus: Investing in techonology

“Value stocks have seen strong performance over the past 12 months, but they are starting to look expensive, trading above historic levels.

“Meanwhile, growth stocks are currently trading at a significant discount to their 20 year average on a P/E basis. With signs of an improving economy in the US, UK, Europe and even tentative signs of a pickup in China, it is the growth area of the technology market that will be best placed to provide greater capital returns to investors.

Best of class stocks make attractive acquisitions

“The more stable large cap names have been in favour during the recent period of economic uncertainty, but these stocks are not showing the growth they used to and investors are now in a position to be better rewarded by picking small and mid-cap companies that are not hampered by their size.

“In addition, many large caps are generating high amounts of cash and will be looking to make acquisitions to help stimulate their growth.

“It is the best of class small and mid-cap stocks that will be the most attractive targets and investors in these companies are most likely to benefit from any M&A activity, in my opinion.

“A recent example is the acquisition of Sourcefire, an intelligent cybersecurity solutions provider, by Cisco earlier in the summer.

Evolution in technology usage supports growth stocks

“There are a number of compelling themes producing exciting investment opportunities in the technology sector in the near and longer term.

“Ubiquitous computing is a key theme, with mobile technology such as smartphones and tablets opening up how consumers and businesses use data. An example of a company benefiting from the increase in data usage and 4G is Ciena, a provider of communications equipment and ethernet connectivity to telcos, which enables companies to transfer more data at faster speeds.

“Another trend is cloud computing, a key innovation that has spurred significant changes in the lifestyles of businesses and individuals. Cornerstone OnDemand, a software-as-a-service company, is an example of a business that is benefiting as companies take advantage of cloud computing, being largely used by HR departments for online training purposes.

“Other themes we are seeing opportunities arise from include:

• Enabling productivity – enterprises are looking to drive efficiency and do more with less;

• Social media – an area that is gaining significant attention given the Facebook IPO and the business has demonstrated its model is working. The Twitter IPO follows later this year and will be closely watched by the market;

• Connectivity and the “Internet of Things” – businesses and consumers are increasingly connected to the internet and we will continue to see this proliferate into our daily lives;

• Cyber security – with consumers and businesses becoming more reliable on electronic devices we are increasingly carrying a wealth of data around with us. Companies and individuals are seeing the need to deploy methods to stop cyber-attacks;

• Emerging market demand – an increasing number of companies located in emerging markets are looking to become multi-nationals and are having to use technology more efficiently and more broadly in order to compete. In addition, the growing middle classes in emerging markets are leading to an increase in consumption of consumer electronics.”

Enter your e-mail address to receive updates straight to your inbox

My Newsletter

You can easily unsubscribe at any time by clicking on the unsubscribe links at the bottom of each of our emails
Categories: Analysis

About Author