The Herald Bulletin

Morning Update

Columns

May 16, 2014

'Big Joe' Clark: Not all tech companies are the same

When the general news stations overlap with financial dialogue, I begin to get nervous. This time it appears the wires may be getting crossed.

We are seeing the IPO market behave similarly to the tech wreck back in 2000, based on earnings or lack thereof regarding the new issues coming to the market place. According to data from SentimenTrader, the percentage of IPOs with negative earnings is hitting levels not seen since near the peak of the technology bubble in 2000.

But to bundle all technology companies under one label is a huge mistake.

Technology stocks are known to be more volatile that other sectors of the U.S. economy. This volatility applies to the rate of price change, both positive and negative.

Academics would tell you they typically have a higher beta, and stock enthusiast would tell you they offer more excitement! Both statements tend to lead individuals to believe these are not investments for the faint of heart.

The problem with that thought is that the term “technology” is very broad. There are numerous industries in the technology sector, and the fundamental characteristics of the companies are across the stratosphere.

The technology sector has more net cash right now than any other sector! That is only one metric, but an important one.

With Silicon Valley expanding at a rapid rate, and companies seeing cash flood in — partially because of low interest rates, as well as investors getting dollar signs in their eyes — we can’t weigh each company using the same scale.

Often, we hear technology companies broken up into two categories, “old tech” and “new tech.” An example of an “old tech” company would be Microsoft or Intel. While a “new tech” list would likely include Netflix, Twitter and Facebook.

Venture capitalists are constantly on the lookout for the next big thing, hoping to uncover the next Mark Zuckerberg, founder of Facebook, to invest with before the company goes public. Since many technology companies are acquiring one another, we’ve seen an increase in large swings taking place in share prices within this sector.

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