Transcripts

The Tech Sector Proves Fruitful & Stocks Multiply

SUZANNE PRATT: The momentum was behind the technology sector on Wall Street today. Investor reaction to Apple's earnings blowout sent its shares surging 7 percent and far outweighed concerns about Wal-Mart scaling back plans to open new stores. Tech stocks have been star performers lately and as Erika Miller explains, analysts say now is still a good time to buy into the sector.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: The recent stock market sell-off has claimed many victims, but technology stocks have emerged virtually unscathed. According to Standard & Poor's, technology has been the second best performing sector after consumer staples in the past week, as well as in the past 13 weeks. Analyst Scott Kessler says turmoil in the credit markets is prompting investors to seek alternatives to financial stocks.

SCOTT KESSLER, DIR. OF INFORMATION TECHNOLOGY EQUITY RESEARCH, S&P: People right now are concerned about this credit crunch and they're concerned about companies that are substantial lenders of or borrowers of capital. Tech, obviously, is kind of a safe haven there.

MILLER: Anthony Conroy, head equity trader at BNY Convergex Group, says investors are also being lured by the sector's strong profit growth.

ANTHONY CONROY, HEAD TRADER, BNY CONVERGEX GROUP: Just the recent earnings have been just tremendous -- from Google, from Apple, from Intel. These companies' growth rates are so strong that people -- they're driving towards it. All the innovation that we're seeing in technology, people are jumping on the bandwagon. They want to be involved in it.

MILLER: The weaker dollar is another tailwind behind tech, spurring demand for U.S. technology products abroad. Those foreign revenues get an additional boost when they are converted back into dollars. According to S&P, the Federal Reserve's rate cuts this year are also driving interest in tech stocks. Since 1945, technology has been the best performing sector in the six months after the Fed starts cutting interest rates. The sector has posted an average gain of 21 percent in that period, double the increase of the overall market. Seasonally speaking, many analysts say now is a good time to own tech stocks.

KESSLER: The fourth quarter is by far the most important quarter for technology companies, from a fundamental perspective. And they also tend to outperform the broader market during that period.

MILLER: But there are risks to investing in the sector. A big one is a sharp slowdown in global economic growth, which could prompt consumers and businesses to cut spending. The technology sector is on track to outperform the broader stock market this year for the first time in four years. It's a trend that most analysts expect to continue well into 2008. Erika Miller, NIGHTLY BUSINESS REPORT, New York.