There are some pretty diverse styles and stocks that fun under the heading of investing. But nothing is more synonymous than growth investing and technology stocks. After all, new devices, software and future equipment scream economic expansion. That growth translates into big stock gains with the Technology Select Sector SPDR (NYSE:XLK) rising more than 51% in 2009. But on the ten-year anniversary of the great tech bubble, and memories of Dr. Koop.com floating in their heads, many investors are beginning to wonder about their technology holdings, and are pulling out of the sector after such a banner year. That might not be such a great idea.
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Tech for Rebounding Economy
Today's tech sector is far removed from the land of the 2,000 dotcoms era, when all hype, no revenue companies within the sectors were primary investment alternatives. Our ever-more-complicated lives revolve around technology. It seems that everything we touch, from our cell phones to our toasters, have some form of microchip inside it. But, the sector is highly sensitive to the economy as consumers paired down their spending during the crisis. Now that the recession is on the mend, corporate IT spending is ramping up. A recent optimistic survey by Computer Economics stated that, over the last three months, 19% of the respondents had already increased their IT budgets.
Consumers are getting into the act too, as increasing wages are leading to more Nintendo (OTC:NTDOY) Wii's and more Sony (NYSE:SNE) Bravia TVs in homes. Combine that with the tech sector receiving more than half of its revenue from overseas markets and you have a recipe for both short-term and long-term success.
A Dose of Tech Dividends
After the rally we have seen in 2009, and the subsequent floundering in the tech world, during the early months of 2010, investors may want to hedge their broad tech positions with some individual tech names that pay dividends. While the sector is not known for outsized payments - the PowerShares NASDAQ QQQ (NASDAQ:QQQQ) only yields 0.49% - there are some tech companies that are using their cash hoards to reward shareholders with something other than acquisitions. Dividends play a vital role in helping stem risk and cushioning down stock prices. Here are a few individual tech picks with higher-than-average yields that will benefit from a rebounding economy. (For a way to hedge your emerging market portfolio, please see Hedging with Emerging Market Telecoms.)
Deriving a significant percentage of its sales from abroad, Microchip Technology's (Nasdaq:MCHP) semiconductors find their way into washing machines, diabetics glucose meters and various other consumer products. The company just upped its sales projections for the current quarter from earlier estimates of 5% growth to 8%, as strong chip demand is moving faster than supply. Microchip Tech currently pays one of the highest and strongest dividends in the tech sector, currently around 5%. Another chip maker, Maxim Integrated Products (Nasdaq:MXIM) is also seeing the benefits of tighter supplies and growing customer demand. Maxim trades at a much higher P/E than that of Microchip, but also yields a sector beating 4.2%.
While technically a real estate investment trust (REIT), Digital Realty Trust (NYSE:DLR) can be viewed as tech play. The company owns and operates datacenters for large domestic and international clients. These computer banks are expensive to operate and many companies outsource their ownership and operations to Digital Realty. While commercial real estate is still functioning in a quagmire, the role of datacenters is increasing with almost 62% of companies building a new one within the past 24 months. DLR currently yields 3.5%.
Molex (Nasdaq:MOLX) builds more than 100,000 different products used for almost all technology applications, including memory card sockets, cable connectors and mother board equipment. The company is basically a RadioShack (NYSE:RSH) for the tech industry, and yields at respectable 2.9%.
The Bottom Line
After a banner year in 2009, many tech investors are worried about their holdings. Techs future growth prospects are strong, as the world pulls itself out of the recent recession. Instead of selling, investors should take a look at some of few dividend plays in sector. The proceeding stocks are just a few of the ways to hedge a tech portfolio from any downturn. (For further reading, see Technology Sector Funds.)