Stocks of the leading technology names, such as Microsoft, Oracle, IBM and EMC, are enjoying a rising popularity among investors who seem to be shifting away from pumping their money into financial companies. In the opinion of Scott Kessler, head of the technology group at Standard & Poor’s Equity Research, people seem to be more attracted to buying stocks of the reliable, familiar technology brands which were already popular in the late 90s. One of the reasons for this is that the well-known corporations can successfully combine solid fundamentals with providing the newest products and services, like, for example, Apple’s iPhone, Microsoft’s Vista and office software, or Oracle’s Fusion - a major 2008 development. Also, due to the fall of dollar, the growth and profit prospects of the leading technology corporations outside of the USA, where corporate tax rates are lower, look very promising.The following technology brands now appear to be in the “strong buy list”:
- Automatic Data Processing, the payroll processing company;
- EMC, the largest storage company in the world, a grand beneficiary of the VMware IPO;
- Corning, displaying a steady growth with its flat-panel TV, environmental and fibre businesses;
- IBM, with its inexpensive stocks and a solid position in the fields of software and services;
- Microsoft;
- Oracle;
- Seagate Technology, one of the biggest and most innovative companies in the space (the stock is at $25);
- Texas Instruments;
- NDS Group, based in London and partially owned by News Corp. Provides secure transactions’ technology.

More information on the subject can be found at “Tech Stocks: A Summer of Love”

Seagate (STX) is still among the least expensive stocks on a p-e and p-e-to-growth basis that we cover. The stock is at $25, and we figure the company will earn $2.13 in its June, 2008 fiscal year. Its p-e is 12, and we see growth of that level or higher. They’re the biggest and most innovative [company] in the space. Texas Instruments’ (TXN) chips power mobile offerings—the stock is attractively valued.

Do you like any smaller companies?

I’d highlight two names in the communications equipment area. The first is Arris Group (ARRS)—it’s a great play on continued adoption of both video-on-demand and VoIP services from cable companies. The stock sold off from highs earlier this year but we see it attractively valued. We see earnings per share of 83 cents this year. The stock is trading at $14.50 stock, so its p-e is 17 and the growth rate is about that level. So we like the trend and valuation.

NDS Group (NNDS) provides technology to enable the transmission of secure transactions over set-top boxes. It’s based in London and is majority owned by News Corp. (NWS). The growth driver is that everyone wants to deploy secure applications, such as games and interactive functionality, over set-top boxes. It has a great footprint with BSkyB and Sky Italia. I think the fundamentals are solid.

Citrix Systems (CTXS) is a midcap name. We like the theme of remote access that it’s centered on. The stock is attractively valued.