"Street Critique"-David Garrity, Principal at GVA Research
Wednesday, May 27, 2009JEFF YASTINE: Tonight's "Street Critique" guest says if history teaches us anything, technology could very well lead this market recovery. He's David Garrity, principal at GVA Research. David, welcome to the program.
DAVID GARRITY, PRINCIPAL, GVA RESEARCH: Thank you.
YASTINE: The S&P 500 is up about 32 percent from the March lows, but the NASDAQ is up about 36 percent from the March lows to today's close. What does that say about the market?
GARRITY: Certainly what it says about technology is on a relative basis the companies are more reasonably valued and are in better financial condition in the broader market. And what investors should consider here is that going into this downturn, about 75 percent of the technology companies in the S&P 500 Index are actually net cash positive. Their balance sheets work much stronger. The S&P 500 on the other hand only about 25 percent of the companies actually had a net cash position, so far more exposed. Also we would note here technology companies basically pulled a trigger pretty quickly in terms of rating back both their expenses as well as also their production. So the companies really have been a very lean position now as we start to see the recovery in new orders coming from such things as the Institute for Supply Chain Management or ISM index and that argues that we should start to see probably revenue growth resume in the second half of 2009 and along with that, probably fairly meaningful profit margin expansion and as a result, tech stocks do have a leadership position in terms of the market.
YASTINE: David, tell us about the stocks you're watching. One of those is Apple (AAPL).
GARRITY: Certainly. In terms of Apple, obviously a name very well- known to investors at large and certainly a product or a company that has a wide range of products benefiting both in terms of the consumer as well as also the enterprise segments. If we look at what Apple has done with the iPod , while they didn't necessarily invent the smart phone category, certainly they have served very significantly to popularize it. And at the same time, while Apple has been putting in place innovations such as being able to run off Intel software, Intel hardware, chips and also at the same time being able to operate with Microsoft software, they started to address a larger end market to include business as well as personal users.
YASTINE: And the other stock you like is Google (GOOG). Why?
GARRITY: Certainly for Google, company at the vanguard of the shift of advertising away from old media channels over towards the Internet. Certainly they maintain that position very strongly U.S. and overseas. At the same time, Google can use their dominant position in that high margin, high growth business to move into other areas that potentially displace companies such as Microsoft.
YASTINE: And the third stock, amazon.com (AMZX).
GARRITY: Amazon, consumers obviously aren't rebounding rapidly but at the same time you can find better value in Amazon in some priced categories than you might be able to find at Wal-Mart. And as a result of that, you start to see consumers gravitating towards where the value is best. And Amazon, surprisingly, offers this in a wider range of categories and also in a wider range of geographic markets.
YASTINE: David, do you own any of the stocks we have talked about?
GARRITY: Yes, I have an ownership position in Apple both personally and professionally, no positions in Google or Amazon.
YASTINE: David, thanks for your time on the program, appreciate it.
GARRITY: Thank you.
YASTINE: Our guest David Garrity of GVA Research.
