A business born in a garage. That is the picture many see in their mind when thinking about tech stocks these days. Legendary technology stocks like Google, Apple and Amazon were all launched by visionaries working in their suburban garages.
But remember, Hewlett-Packard was started in a garage, too. And it is certainly a technology stock. And even though they may not have been born in a one-bay bungalow, payment processors, security software developers, data providers and even travel companies (think Priceline.com) are all technology stocks.
Technology is more than the Internet
Technology stocks have impacted the American equity market for nearly a century. Long before the market mania of 1998 through March of 2000, the “new economy” and technological advances of the 1920s foreshadowed the tech bubble of modern times. But the high flying technology stocks back then were Eastman Kodak, General Electric, RCA and AT&T.
With technology stocks, investors aren’t necessarily looking for dividend income, but rather are seeking rapid growth. But with that potential upside comes a good deal of price risk. Tech stocks are not for those with digestive problems.
Today, tech has gone mainstream. Technology stocks are not just about the Internet. Apple product announcements are national media events. Media, social and technology hybrid stocks like Netflix, LinkedIn and Facebook are popularly tracked.
Industries within the technology sector include:
This segment contains companies like Trend Micro, Oracle and Broadleaf that design and produce software products for business and personal computing applications. Many of these firms are based in Japan.
IT Services & Consulting
Including stocks like IBM, Fujitsu, and Rakuten, these companies may offer network management systems as well as consulting services. Many also provide e-commerce and Internet service websites.
This slice of the industry manufactures semiconductors, best known as “microchips” or simply “chips,” as well as testing equipment related to circuit boards, wireless products and hard disk drives. Companies include Teradyne, Tokyo Electron and Advantest.
Motorola, Hitachi and Harris Corp are names you might recognize in this corner of the technology stocks arena. Products produced include cell phones, two-way radio systems, and wireless network systems.
Hewlett-Packard, EMC and TEAC are players in this portion of the industry. Products can include servers, storage systems, personal computers, workstations, notebooks and tablets.
Opportunities in technology stocks seem to be ever-expanding. The sector now includes cloud computing, networking and a multitude of Internet applications. Commercial products and services can tap into government budgets, aerospace, retail financial and consumer innovations.
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Surprisingly, Wall Street analysts are boosting earnings estimates for the third quarter. The earnings upgrades are very widespread.
Bottom line: When third quarter earnings reports start rolling in a few weeks from now, I expect another bumper crop of positive profit surprises.
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