Sectors To Watch: What’s In Store For Tech Stocks?
After a strong start to 2012, technology stocks finished the year with a whimper.
In the first quarter of 2012, the Technology Select Sector SPDR (XLK) ETF logged an impressive 18% gain. After a weak second quarter, XLK went onto set new highs in September. It reached a peak gain for the year of 24%.
When it was all said and done last year, XLK logged a 13% gain. But it was down nearly 9% from the September highs. Tech stocks had clearly lost their bullish momentum.
But more importantly, what’s in store for tech in 2013?
First off, PC sales are expected to decline at least 3% this year. But demand for tablets is expected to grow 30% to 40%! The shift in consumer preference for tablets over traditional PCs is one of the most exciting developments in the sector.
Put simply, companies that make tablets or components in them should easily outperform those that are still focused on PCs.
In fact, consumers are expected to spend $1.1 trillion on electronic devices this year. That’s an increase of 4% over the amount they spent in 2012. And the majority of that growth will come from emerging markets.
That bodes well for Apple (AAPL) and Google (GOOG) who dominate the mobile operating system space. And it’s a big reason why Microsoft’s (MSFT) new Windows 8 operating system is designed to work on PCs as well as tablets and smartphones.
Another thing to keep a close eye on is the amount of money businesses are investing in new technology.
According to Gartner, tech spending is expected to increase 5.6% to $3.7 trillion. Growth of 5.6% is a significant jump from 2012 when tech spending grew by a meager 2.35%.
The lion’s share of the increase in business tech spending will be focused on cloud computing. Businesses of all shapes and sizes are expected to increase the amount of money on cloud services by 50% this year.
A massive increase in cloud spending should lead to a strong performance from stocks like VMware (VMW), Salesforce.com (CRM), and Rackspace Hosting (RAX), just to name a few…
Here’s the bottom line…
The fast growing tablet market, as well as the large increase of money being spent on cloud computing, is positive for the entire sector. And as long as the global economy avoids a major hiccup, tech stocks should have a strong year.
An easy way to profit from a rebound in tech in 2013 is to buy LEAP or long term options on XLK. Right now, you can buy the January 2014 $30 XLK calls for around $1.70.
These at the money call options have a year until expiration. You’ll breakeven if XLK is trading for exactly $31.70 when they expire next January. If XLK is above $31.70, you’ll make a profit. But if XLK is below $30.00 next January, you’ll lose your entire investment.
Good Investing,
Corey Williams
Category: Stocks
