Tech Stocks: Are They Still Worth Buying?

| February 8, 2012 | 0 Comments

After a year of indecision, stocks are soaring to start off 2012.

The S&P 500 is up more than 7% in just the first few weeks of the year.  And technology stocks are doing even better… The Technology Select Sector SPDR Fund (XLK) is up more than 9% in the same amount of time.

Tech stocks are outperforming the large cap index by nearly 2 percentage points.  They’re clearly starting off the year on the right foot.

Tech’s outperformance is a clear indication of relative strength.  And when stocks are in an uptrend (like they are right now), you want to own the strongest sectors.  They give you the best chance of capturing big profits as stocks move higher.

Anytime an entire sector moves nearly 10% in a few weeks, it gets investors’ attention.  But it also raises a few questions, like… Are tech stocks still worth buying?

The short answer is… Yes!

First off, XLK is breaking out above a major level of resistance.  As you can see in the chart below, XLK’s multi-year advance off the 2009 lows came to a screeching halt last year as the ETF neared the 2007 highs.

This technical resistance level (blue line) put a lid on tech stocks for months.  But the recent surge has propelled the tech ETF through this stiff level of resistance.

And here’s the best part…

As you know, once technical resistance is broken, it becomes a new support.  So this level should be a new floor as tech stocks work higher from here.

Obviously, this is great news for tech stocks.  The combination of a breakout and relative strength bodes well for the sector’s performance in the days and weeks ahead.

But the good news doesn’t end here…

The surge in tech stocks isn’t just technical.  Nope, this sector is surging because of strong fundamentals as well.

Right now, company balance sheets are strong.  They’ve paid off debt and raised cash to record levels.  So these stocks are stronger and safer than ever.

There are also a number of big catalysts like, mobile, cloud, and big data driving growth.  And there’s no stopping these movements now that they’ve taken hold.

And to top it off, tech stocks are cheap.  Many of the largest tech stocks, including Apple (AAPL), Microsoft (MSFT), IBM (IBM), Google (GOOG), Oracle (ORCL), and Intel (INTC), are trading for less than 12x next year’s earnings.  That’s dirt cheap for tech stocks.  And it’s a clear indication tech stocks still have plenty of upside.

In fact, tech stocks haven’t enjoyed this combination of strong balance sheets, stable growth, and cheap valuations since the mid-1990s.

No doubt about it, tech stocks are still worth buying at these levels.

You can jump aboard the tech boom with an ETF like XLK.  But investing in individual stocks is an even better way to profit.

That’s why I edit a newsletter called Tech Boom Trader… We cut through all of the technical jargon and tell you exactly how to invest in the tech stocks offering outsized returns with minimal risk.

So far, the results have been spectacular.  Every stock I’ve recommended is up more than 20%.  And I’ve got another trade coming out tomorrow that could be even bigger.

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Category: Stocks

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets on a daily basis. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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