By Mohamed Ali Bernat The tech sector has taken such a beating over recent months that there is lit...
By Mohamed Ali Bernat
The tech sector has taken such a beating over recent months that there is little point moving to defensive stocks now, according to Alan Torry manager of the £213m SocGen Technology unit trust.
He added: "The sector is fraught with difficulties at the moment and I think that it is too late to move into defensive areas such as software services company EDS, which, like pharmaceuticals in the US, tends to go up when the rest of the market is falling simply because the money has to go somewhere."
Torry said there are much better opportunities to be had by being a little bold and buying oversold large names, such as EMC which he always felt was over-valued but has fallen from around $80 to below $40 in recent weeks.
Torry also favours companies at the leading edge of telecoms equipment and those involved in rolling out corporations' internal and external operations on to the web.
He believes it is better to be in the newer parts of technology, such as web-enabling corporations' whole businesses and storage companies like Veritas, than in older types of tech stock such as PC manufacturers which he said are performing well at the moment but are not a good long term bet.
The AA-rated fund is currently overweight software and telecoms, underweight semiconductors.
Torry said the US economy helps tech stocks on the cyclical side but what will drive the sector out of its current slump is companies realising they can do business more efficiently and at lower cost by adopting technology. Part of the reason for the slump is that IT managers pulled the plug on a lot of projects at the end of last year and put them on hold, said Torry.
He added: "IT system projects were going ahead but when they reached the board for approval, a lot decided to put them on hold on economic concerns stemming from the US.
"This filtered down to software and hardware providers, which saw their order book figures start to fall away as corporates withdrew their orders but, as we get greater clarity on the economy, I think a large number of those projects will turn out to have been postponed rather than cancelled."
Many software companies fell by more than 40% in February compared to a Nasdaq decline of 22% because they were unable to show the visibility of upcoming orders.
Torry said: "Software stocks were holding up brilliantly until November and, for the first half of 2000, software and semiconductor stocks were making new highs despite the correction in March."
Torry said the tech downturn started with semiconductors, moved to telecoms equipment and has now broadened out to all sectors.
He added that sectors are being affected because most of the poor numbers being reported are not company specific but depend on the general market that drives their demand.
In other areas Torry believes those which have built their inventories too high will be looking to run them down, which could take until the end of the year.
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