It’s Finally Time to Speculate in Tech Stocks Again

The title of June 12th’s DailyWealth was “The Coming Return of Tech?”

It turns out, we were more prescient than we expected... The tech indexes bottomed over the next two days after we wrote that letter, and they’ve been rising since.

To enter a trade, we look for two main ingredients... a hated sector that’s just starting an uptrend. We had the first ingredient in tech when I wrote about it on June 12th.  Now it looks like we have the second one too... the uptrend is trying to assert itself.

In short, I think we’re in for at least a three-month upward move in tech stocks.

On Independence Day, I checked in with a few friends to talk this idea over.  They agreed with me...

First I talked with Jason Goepfort, ofwww.sentimentrader.com. Jason does fantastic work. He pointed me to the article he published the evening of June 13, titled “Rydex Traders Have Abandoned Technology, Now Less Than 10% of Total Assets.”

In that article, Jason made the case that investors had fully “given up” on tech, and it was due for a rally. That’s exactly the kind of homework I like to see. 

I then talked to Jeff Clark...  Jeff writes two great advisories, The Big Trend Report and The S&A Short Report.  When it comes to shorter-term trades like this one (a potential three-month run in tech), I like to check in with Jeff to get his take.  He’s very good at this type of thing.

Jeff likes this trade, too. In particular, Jeff likes the semiconductor stocks... which are stocks like Intel (INTC).

On June 12th, I explained the case for techs, and used Microsoft as an example: 

Microsoft is getting darn close to 8-year lows... It’s getting a bit absurd. Microsoft is a near-monopoly that earned an enormous 32% profit margin last year. Yet it’s trading at a forward P/E of 15... the cheapest it’s been in twenty years. You can’t find a business anywhere with that kind of long-term profit margin, for that cheap a price. Actually, you can... just look at the other old tech lions. Intel, for example, has a profit margin in excess of 20%, and a forward P/E of 14.

Some day, investors will return to these tech shares and ones like them. The old kings of the dot-com era – which were so loved then, and so ignored now – will no doubt have their day again.

It looks like that day may be here now... at least for a quick three-month trade.

If you’re looking for a short-term speculation, tech stocks are definitely worth a look now.

Good investing,

Steve