Investing in Technology Stocks

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Investing In Technology Stocks has been considered high risk since the dot-com bubble burst in the late 1990s. Too few companies back then had a solid business model and were, frankly unaware of how to properly monetize their on-line presence.

Following the global credit crunch and financial bailouts is it now time to look at this sector again?

At the moment, many technology companies have low levels of debt, strong balance sheets, and good prospects of recurring income. Remember, these companies are selling goods and services people are buying, offering renewed opportunities for investors to grab a stake in their growth.

Both, Apple & Intel have recently beat most profit expectations well ahead of results from 2008.
Technology indices have also done very well with the S&P index for the technology sector rising 58pc since November 2008.

Technology companies are not the same as a decade ago when the share prices rose on false expectations of growth rather than fundamentals. Now there should a reasonable chance that technology stocks will outperform the US stock market over the next three years.

Also tech companies are cash generative, meaning dividends should rise. This is something a new culture among technology companies but it is fast taking hold. Microsoft, Oracle, IBM and Intel are among those that pay dividends.

The average age of personal computers is five years and a replacement cycle is now due which should help a broad range of companies providing both hardware and software. And Windows 7 is just around the corner. This should trigger significant new investment and benefit a variety of technology stocks.

When the recovery comes, expect technology to continue to be a leading sector. But as ever diversity in your investment portfolio is very important so if you are going to be investing in technology stocks keep the the balance of your portfolio spread with probably no more than 5% invested in tech stocks. A technology investment fund may prove a safer bet.