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The Honolulu Advertiser
Posted on: Tuesday, January 17, 2006

Investors rush back to tech

By Tom Petruno
Los Angeles Times

In search of robust corporate earnings growth in 2006, Wall Street is thinking retro: the technology sector.

Tech shares which soared in the late '90s, then swooned in 2000-02 have led the stock market's powerful advance this year amid rising expectations for healthy fourth-quarter profit reports and for more of the same in the new year.

Although energy companies are expected to post the biggest year-over-year gains when fourth-quarter reports begin to roll out in earnest next week, that sector's strength may no longer be a surprise to investors, given record energy prices for most of the past year.

By contrast, the growth potential in the tech business was highlighted by some of the product rollouts at the International Consumer Electronics Show in Las Vegas last week, and by Apple Computer Inc.'s surprise announcement last Tuesday that its fourth-quarter sales soared to $5.7 billion up more than 60 percent from a year earlier.

What's more, because many U.S. companies are flush with cash, there are high hopes for continued growth in corporate capital spending on tech equipment and software in 2006.

"Earnings expectations for tech look pretty solid," said Dirk Van Dijk, research chief at earnings tracker Zacks Investment Research in Chicago.

Tech companies in the blue chip Standard & Poor's 500 index are expected to report a 17 percent year-over-year gain in fourth-quarter earnings, on average, based on Wall Street analysts' estimates compiled by Thomson Financial in Boston.

Among 10 major industry groups, that would be second only to the energy sector's anticipated 45 percent profit gain.

For 2006 the tech sector's expected profit growth rate is 16 percent, compared with 14 percent for energy and 13 percent for the average blue-chip company, Thomson data show.

The sector expected to show the biggest year-over-year earnings gain in 2006 is the so-called consumer discretionary group, which includes auto makers. Analysts' consensus estimate is for an 18 percent increase in profit. But that would be a rebound from dismal results in 2005.

Many investors have been suspicious of tech stocks since the 2000-2002 crash that followed the wild late-1990s bull market. This year, however, money has been pouring into the shares.

Despite a modest pullback in the market in recent days, Apple's stock is up 19 percent this year, disk-drive maker Seagate Technology is up 15 percent and computer networking giant Cisco Systems Inc. is up 11 percent.