"Street Critique"-David Garrity, Principal at GVA Research
Wednesday, October 28, 2009PAUL KANGAS: Tonight's "Street Critique" guest says there are a host of reasons why the tech sector continues to do well these days. He's David Garrity, principal at GVA Research. And David, welcome back to the program.
DAVID GARRITY, PRINCIPAL, GVA RESEARCH: Thank you, Paul.
KANGAS: Despite today's steep sell-off in tech stocks, they have done better than the broader market year to date. Why is that?
GARRITY: Tech is an early cycle sector and we've certainly seen that out performance unfold this year. You have better global exposure for these companies as a group versus other sectors in the S&P and also you have some very favorable product cycles unfolding as well as also stronger financials.
KANGAS: What was today's sell-off in the tech sector, just a kind of a correction?
GARRITY: Well, before the opening I had bad news coming out of SAP, the German enterprise software company, which certainly hurt the sentiment going into the open and obviously that unfolded as the market took its profits during the day.
KANGAS: Right. Now we're starting to see interest rate hikes around the world. How could that affect IT investment?
GARRITY: Obviously cost of capital is going to have an impact in terms of investments that are made by consumers as well as corporations for productivity and efficiency. But we think that the isolated increases that we've seen so far out of Australia and Norway probably will not be followed by the U.S. or perhaps up to 18 months.
KANGAS: OK. Microsoft's Windows 7 is now up and running in the market place. How do you see that product playing into growth for the tech sector?
GARRITY: Certainly it's expected to trigger a PC upgrade cycle. We've had confirmation coming from vendors such as Intel and others that we are seeing strength in demand and that this continues not only into the fourth quarter of 2009 but also into 2010.
KANGAS: In fact Microsoft (MSFT) stock is one of your sector picks. What else looks good to you in that area?
GARRITY: We're also looking at Cisco (CSCO), growth in Internet volume traffic, which will help build demand for infrastructure products, which Cisco provides, also looking at Intel (INTC).
KANGAS: Let's have a look -- we have a chart here on Intel. There's the chart, very good. They both have strong charts.
GARRITY: Certainly. We think that the likelihood is that Intel, higher operating volumes, expanding margins, benefiting from PC upgrade cycles, certainly a good performer going into next year. Looking elsewhere in the sector, Focus Media (FMCN), a company primarily focused on Internet advertising and out of home advertising in China, benefits next year from the World Expo in 2010. And then closing things off, Research in Motion (RIMM) certainly very strong in the smart phone sector, both with businesses as well as consumers, having a fairly significant number of new products coming out over the next six months, which arguably should support the stock and move it higher.
KANGAS: Some good bullish reasons there. David, do you personally own any of these stocks or have other disclosures to make?
GARRITY: Yes I do. I own Microsoft in personally, Intel in the firm, Cisco in the firm, Focus Media personally and then also RIMM personally.
KANGAS: OK. So you personally put your money where your research leads you. OK, fair enough.
GARRITY: Professionally and personally.
KANGAS: There you go. Thanks again for your time. My guest, David Garrity, principal at GVA Research.
