A: So is tech a good place to put new money to work?
Q: The irony is that while the sector’s growth is much slower than in the past, tech is probably a more interesting place to invest now. Tech stocks are reasonably priced and typically carry little debt, making the sector less vulnerable to rising interest rates. Based on the current state of tech orders, the sector, now valued at roughly 16.5x earnings, looks to be trading at around 10% below fair value. Assuming we see some modest pickup in business spending next year, the sector is probably even more undervalued.
While I don’t see a return to the glory days of the late 1990s, the good news is that few expect as much. For that reason, I see value, if not excitement, in the sector and I continue to advocate that investors overweight it relative to other sectors.
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a regular contributor to The Blog and you can find more of his posts here.
Sources: Bloomberg
Narrowly focused investments typically exhibit higher volatility. Technology companies may be subject to severe competition and product obsolescence.