As technology rallies go, the rally of the last week and month is suggestive but not yet totally convincing.

For the week ended on September 16, a number of stocks in the sector such as Nvidia (NVDA), Intel (INTC), Oracle (ORCL) and Marvell Technology Group (MRVL) convincingly beat the 5.42% gain for the Standard & Poor’s 500 Stock Index. Nvidia was up 11.38%, Intel up 11.52%, Oracle 12.42%, and Marvell 10.81%, according to Morningstar.com.

That’s not especially surprising. High beta stocks, like most technology stocks, should rise faster than the general market when the broad market is climbing. Nvidia, for example, has a beta of 1.61, meaning that it is 1.61 times as volatile as the broad market. (By definition the broad market of stocks has a beta of 1.) Add in the way that technology stocks have been pounded in 2011–even after this rally Marvell Technology is down 18.22% for 2011 and Oracle is down 6.07%–and you’ve got a recipe for a tasty bounce.

But the technology rally is suggestive since it’s a reminder of the coming seasonal sweet spot for technology shares. Technology companies see a huge positive swing in revenue every year in the third and fourth quarters. I suspect we’re going to get some kind of November/December rally in stocks this year once the global economy (and especially the EuroZone)  has managed to survive September and October’s very rough spot without falling apart. The historical seasonal pattern for technology shares—added to the underperformance of technology stocks in 2011—will push the sector to the front in any rally. The sector’s performance could actually be quite explosive since the sector is under owned—for many investors technology shares have fallen off the radar screen—and any rally strong enough to generate “believers” will have a very strong bank wagon effect.

In most years sometime around October 20 or so is a good time for checking the technology weighting in your portfolio. This year last week’s rally says that you ought to start that checkup—and start adding to your technology weighting–a little early.

A technology rally would lift all boats but not equally. Microsoft (MSFT) was up only 5.36% last week, actually trailing the S&P 500 and Cisco Systems (CSCO) was up just 5.06%. On the other hand, Broadcom (BRCM) rose 6.67% and EMC (EMC) 6.9%, both more than the S&P 500.

I think this week’s rally in technology shares—even if it doesn’t hold long enough to roll right into an end-of-the year rally–provides a pretty good template for where to put your money this year. (Just to be completely clear, I’m not saying that the U.S. stock market is about to launch another big nine month rally or that any end of the year rally in U.S. stocks is sustainable. I think we’re all too aware of the big problems that are still lurking out there. All I’m looking for is a relief rally if, as I continue to think likely, European governments get their act together enough to kick the Greek and Italian debt crisis down the road into 2012 or 2013. In other words, don’t fall in love with anything you might buy now and look to take profits when the news flow of not-quite-so-bad-as-expected news starts to diminish in January or so.

Okay what did last week’s technology rally tell us about where to place our technology bets for the last quarter of 2011? Read more

I keep hearing that technology shares are cheap.

The numbers seem to back that up. “Seem.”

Computer stocks trade for just 9.3 times reported earnings before interest, taxes, depreciation and amortization (EBITDA), according to Bloomberg. That’s just 1.3 times the multiple for the Standard & Poor’s 500 stock index for a whole. And that’s the smallest premium for computer stocks since Bloomberg’s data begins in 1998.

The price to earnings ratio for the companies in the information technology sector as compiled by Standard & Poor’s is just 14.8. The multiple for the entire index is 14.7. The 14.8 multiple for the information technology sector is the lowest multiple since December 2009.

And if you want to talk individual stocks, the numbers seem to make the argument even stronger. Cisco Systems (CSCO), one of the technology names to conjure with for decades, trades at a price-to-earnings ratio of just 11.5. Intel’s price-to-earnings ratio is just 10.2.

But, I’m sorry, I just don’t buy it.

I think technology stocks as a whole are pretty accurately priced. The big companies that dominate the sector, the names we all recognize, may even be slightly overpriced. And the true growth companies in the sector may be attractive buys on their growth but they sure aren’t cheap on their price-to-earnings ratios.

I think the whole “Technology stocks are cheap” argument fails to understand exactly how much the technology sector has changed from the good old days and how sweeping the revolution is that is now turning the sector upside down.

Let’s take a look at the assumptions in the technology is cheap argument. Read more

EMC earnings show continued strength in technology hardware

Not the home run that Intel (INTC) hit with its earnings but EMC’s (EMC) results back up my theory that technology hardware companies with new products offering more power at lower prices and lower operating costs will show strength in 2010 even if the economy stumbles.

In my June 20 post “There’s less bad news in IBM’s earnings than Wall Street thinks” (http://jubakpicks.com/2010/07/20/theres-less-bad-news-in-ibms-earnings-than-wall-street-thinks/ ) I argued that Wall Street had misunderstood the lessons of IBM’s and Intel’s second quarter earnings. Not all technology stocks would report better than expected results for the quarter and guide higher for the year, as Wall Street concluded after Intel’s earnings. Technology hardware companies with new products that promised attractive short-term returns, however, would do well despite IBM’s disappointing results.

Intel was one of these in my opinion. Cisco Systems (CSCO), due to report on August 11, was likely to be another. And EMC, which reported second quarter earnings this morning, would give me a quick test of my thesis.

Today’s (July 21) results from EMC support my argument, I think. Read more