Why tech investors need to look beyond Britain Firstly, if you want to be a successful tech investor, you have to look beyond the UK. We do have some decent tech companies – chip designer
Imagination Technologies (LSE: IMG) is my favourite – but the biggest and most successful businesses are elsewhere.
Above all, that means the US. Silicon Valley is the still the world's technology hub and you'll find many more great tech businesses in other parts of the US, especially the North East.
Secondly, don't ignore the giants of the sector. It's easy to look at established tech businesses and assume there's no point in joining the party now. Surely the big profits have already been made?
But I think that's a big mistake. Look at Apple. It's true that the company has fallen on tougher times since the death of founder Steve Jobs. But it's also easy to forget that just three years ago, its shares were trading at $290 a throw. Now they're around $470 and have been much higher.
The iPhone had been on the market for three years by September 2010, so you hardly needed to be a brilliant diviner of tech trends to spot that Apple shares had potential at that point. So investing in tech giants when they're already giants can still make you a good profit.
Which raises the question: which giants should you invest in right now?
My favourite tech giant is
Google (Nasdaq: GOOG). At $900 a pop, the company has a $300bn market cap and is trading on a
price/earnings (p/e) ratio of 26. So it doesn't look cheap at first glance.
However, Google also has a $50bn cash pile and profits are growing fast. It has achieved a dominant position in web advertising that's hard to challenge. What's more, Google is also investing in several 'moon-shot' technologies such as self-driving cars or 'wi-fi balloons.' So with Google, you can own a tech giant today, and there's a small chance you'll profit from new technological breakthroughs tomorrow.
I'm also a fan of
Amazon (Nasdaq: AMZN). Yes, it looks very expensive on traditional valuation metrics – a p/e of over 100 is always going to look scary. But Amazon has never looked cheap. And in its favour, the company has a successful track record of aggressively reinvesting any cash it generates and growing extremely fast as a result. Amazon has also perfected the art of inflicting serious damage on any rivals via very aggressive pricing.
As for
Qualcomm (Nasdaq: QCOM), I think it's a great way to play the smartphone boom. You could spend days agonising over whether Apple can successfully maintain its chunky margins or you could just take the simple approach and go for Qualcomm. The company designs and manufactures a wide range of products and technologies that are all related to the mobile world in which we now live. And it's held by several leading technology funds.
This is one sector where fund managers can earn their keep That brings me onto my final tip – Investing in a technology fund is well worth considering.
Because technology is by its nature complex, this is an area where active fund managers can add value. Perhaps more importantly, a fund is a good way to diversify your exposure (and thus reduce the risks) across a range of stocks in the sector.
I'll highlight two tech funds in particular. The
MFM Techinvest technology fund has an outstanding track record and has beaten all its rival tech funds over the last five years and one year too.
The Polar Capital Technology Trust (LSE: PCT) is also worth a look thanks to its experienced management team. It currently trades at a discount to its net asset value of around –7%, so in effect you are getting £1-worth of assets for 93p.
One final point: I've put a lot of emphasis on reducing risk by investing in tech giants and tech funds, but I'm not ruling out all investments in smaller fry. Once you have a core portfolio in funds or giants, you can afford to take more risk on the edge with some younger companies or brand new technologies.
So, for example, you might want to look at 3D printing which has the potential to be absolutely massive. You can read more about this area in our recent MoneyWeek article:
3D printing: the dawn of a new industrial revolution.
Or if you are keen to invest in individual high-tech stocks, you should really take a look at my colleague
Mike Tubbs' newsletter, Research Investments. Mike focuses very specifically on technology companies that invest a lot in research and development, and staying ahead of the competition.
Whatever you do, don't ignore technology. I think all long-term investors should have a sizeable allocation to tech stocks in their portfolio. After all, it's an area where growth is almost inevitable - and that will remain true regardless of what economic turbulence we see in the next few years.
Got a comment on this article? Leave a comment on the MoneyWeek website, here. Until tomorrow,
Ed Bowsher
Digital Managing Editor, MoneyWeek
Our recommended articles for today…
Forget the taper – QE can never end - The Federal Reserve's 'taper' talk was a desperate ploy to hoodwink bond investors. Bengt Saelensminde explains why.
Forget the taper – QE can never end.
Six rules for spotting great art - Buying art can be a good investment as well as intrinsically rewarding. Sarah Ryan of New Blood Art looks at how to spot the artists with the most potential before they make it big.
Six rules for spotting great art.
And for
Friday's market update, see below...
No comments:
Post a Comment