A Closer Look at the Tech Sector

Jeff Reeves writes at US News and Report:

Surprising values and dividend potential. Many investors have been enamored with big names lately – Facebook (FB), Apple (AAPL), Amazon.com (AMZN), Netflix (NFLX) and Google parent Alphabet (GOOG, GOOGL). But “tech is a broad category” and the timing may be right to look beyond these fashionable names of the moment and think long-term, said Eddy Elfenbein, portfolio manager of the AdvisorShares Focused Equity ETF (CWS).

Elfenbein points to Microsoft Corp. (MSFT), a sleepier tech name that is currently a holding in his fund because of great management under CEO Satya Nadella, who has orchestrated “an impressive turnaround” from the Steve Ballmer era a few years back.

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But it’s not unrealistic for tech to fall out of favor after a pretty long run for the sector. Elfenbein warns that it’s dangerous to assume every name in the sector has certain growth ahead of it and investors have to do their homework.

“We’re in the ninth year of a bull market, so many of the previous strategies have been played,” he says. “That leads to a premium being placed on growth.

Conversely, this is a punishing environment for companies that miss those growth expectations. He points to International Business Machines Corp. (IBM) and Qualcomm (QCOM) as examples of tech stocks that yield more than 4 percent but have actually declined year-to-date because of sluggish growth outlooks.