The thunderous crash of tech stock prices signaled the beginning of the current bear market, and quaking investors are wondering if it's safe to invest in technology again.
"Technology sectors contain some of the fastest-growing businesses, and there are some cheap and reasonably priced stocks right now," says Bill Valentine, president of Valentine Ventures, a portfolio management firm.
Valentine, who accurately predicted the beginning of the current bear market, believes we're near the end of it. "When the high-quality stocks go down, we know we're near the bottom."
But when will tech stocks rise again? "Technology stocks led this bear market, and they'll lead the recovery, too," Valentine says. "Some technology sectors will bounce back faster than others, and the best companies in the strongest sectors will be first." He adds that small-cap survivors typically post the earliest and largest gains in a market recovery.
The trick, of course, is to analyze industries and stocks carefully instead of buying something simply because it's a tech stock. (Like other financial analysts, Valentine warns investors not to lump all technology sectors under the vague umbrella of "tech stocks.")
For example, compare the stock price to the company's earnings and cash flow. Then look at earnings growth trends and the company's debt levels in comparison to its competitors'. This should help you narrow the field of stocks down to a few you can research further.
Also, keep in mind the cyclical nature of some technology sectors. According to Valentine, computer manufacturers are due for an upswing. "Look for the stocks that led the bear market -- such as Compaq and Dell -- to lead the way out." The semiconductor business, however, tends to lag behind the computer segment by a year or two, so don't expect a rebound in chip stocks this year.
If you don't feel up to analyzing technology companies, consider yourself in good company: Billionaire investor Warren Buffett doesn't invest in technology because he doesn't understand the businesses. But if you don't want to shy away from the vast number of fast-growth technology businesses, look for a top-notch technology mutual fund -- or a financial adviser who's comfortable talking tech.
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Compare technology growth stocks to income stocks with this ThirdAge Money Tool.
