Media stocks are offering some opportunities even though Europe's beleaguered technology sector rema...
Media stocks are offering some opportunities even though Europe's beleaguered technology sector remains unattractive, according to Credit Suisse.
Raj Shant, fund manager at Credit Suisse Asset Management, remains concerned that technology hardware companies are still struggling to meet their profits targets on the back of weak demand and continued inventory stockpile woes.
'We have been underweight IT hardware from the middle of last year and are staying underweight,' he says. 'The valuations are not ridiculous anymore, but earnings are still unrealistic.'
While he is positive about the Fed's cutting of interest rates in general, he believes the 275 basis points of cuts this year will not spark a rapid technology recovery as it is not addressing the root of the problem.
'There are structural problems after several years of over-investment in information, communications and telecoms equipment,' he says.
'Cutting interest rates is a cyclical response to stimulate investment but nothing about the slowdown has been caused by policy mistakes, so it is a bit hopeful to believe policy can allow the sector to recover.'
Shant adds that expectations of technology stocks remain rooted in the past, revealing little has been learnt from last year's technology bubble.
'Information, communications and telecoms equipment stocks shot up in 1998 and 1999, and 2000 turned into a bubble year. People are still expecting prices to return to the previous levels and see 2000 as the aberration. They believe that this year will be a normal year,' he says.
Alex Thraver, an analyst on Fidelity's European Growth fund, is more positive about technology, believing some attractive valuations can be found, but is finding more favourable investment opportunities in the media sector. 'A lot of technology and hardware companies are now starting to look attractive on a stock-specific basis but some are still overvalued despite the falls,' Thraver says.
He prefers media companies and thinks the European markets' inefficiency can throw up attractive opportunities in the sector. 'There are lots of anomalies in the European media sector and, unlike in the UK, it is possible in some countries for one company to own the top performing radio station, publisher and newspaper,' Thraver says.
He also expects the pending circulation of the euro currency coins and notes to benefit a number of media companies. 'There a lot of advertising opportunities coming up. Governments have got to advertise the euro and that is an anomaly. Advertising is a developing medium in Europe, where it is not as advanced as it is in the UK or US, and in places like France it is picking up,' he adds.
Shant is marginally overweight media stocks but has a diversified range of holdings in the sector, avoiding specific areas of the market. 'It is not as big a sector as it is in the UK,' he says. 'There are many different kinds of media companies and our exposure is more to those companies that do not rely on advertising revenue.'
Pricing anomalies in media sector.
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Introduction of Euro coins and notes.
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