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Analysts say Tech Sector is not in Bubble Territory


08/29/2016


Analysts say Tech Sector is not in Bubble Territory
In spite of concern surrounding market statistics that suggest rapid growth for the sector, fears that the tech sector is entering another bubble have been dismissed by analysts.
 
While technology stocks listed on the S&P 500 have risen significantly, the tech laden Nasdaq has risen more than 110 percent in the last 5 years.
 
Rising 40 percent in the last 12 months alone, Facebook’s stock price has more than trebled since its initially rocky debut on the Nasdaq in 2012. Almost doubling growth witnessed across the wider S&P 500, in the past year stock in Alphabet, the holding company for Google, has risen 20 percent.
 
However despite these examples, tech stocks are not expensive, says Maurits Heldring, Senior Equity Research Expert at ABN AMRO.
 
"Prices are not high in the sector if you compare to the past with the late 90's dotcom bubble. That is not the situation we are in right now," he said in a CNBC interview Monday.
 
Dollars are being sucked up and other sectors are being disrupted by the leading tech companies, Heldring said.
 
"Look at the financial situation of large companies like Apple, Google and Facebook. They are making high margins and they have fantastic balance sheets,” Heldring said.
 
His bullish conviction on the Tech sector has been strengthened by remarks made by Janet Yellen at Jackson Hole on Friday, Heldring said.

"Yellen said companies will have to rely on productivity and we think IT will be instrumental there."
 
The tech sector isn't too expensive, agrees Neil Brown, Investment Manager Pan European Equities at Alliance Trust Investments.
 
"You don't have a lot of growth in town. Tech companies have it because they are disrupting other industries and they are allowing other firms to do the same," he said on Squawk Box Europe Monday.
 
Investors can look at the longer term even though in Europe there is less obvious choice for winning companies, Brown said.
 
"So with every new radar, every sensor in a car there is a semiconductor solution that needs to step up. So you look at names like AMSL, Infineon. It is not what will they do in the quarter or how many bits of kit did they sell in August? It is one, two, three, five years out, which of these businesses is fundamentally changing their own profit and loss and helping others do the same?" Brown said.
 
Even within this glory outlook, one company that struggles to maintain appeal is Netflix. Even as the firm still holds a price to earnings ratio of more than 300, in the last 12 months the firm's share value has dropped more than 11 percent to $97.58.
 
It sees Netflix hitting $80 per share and has given the stock a sell rating, Axiom Capital Management said in a note on Monday. Netflix may struggle to maintain market share as competition ups its game but it should continue to grow, Axiom said.
 
"We see rising competition, diminishing pricing power, and rising content costs putting pressure on Netflix's ability to meet consensus longer-term subscriber growth and profit estimates. Investors are paying a super-rich multiple that, in our minds, calls for near flawless execution, an expectation we believe will be hard to achieve," the note said.
 
(Source:www.cnbc.com)