ANALYSIS: 10 reasons why investors should buy tech stocks now

Don't whimper, buy, buy, buyInstead of whimpering and whining about the recent correction in the stock market, investors need to show some backbone, quit feeling sorry for themselves and get back in the game.
Written by Larry Barrett, Contributor

The worrywarts predicting doom and gloom and the end of the most prolific bull market in the history of the world are the same people who told you Amazon.com was a "great buy" at $225 (£141.75) a share.

Those investors tracking their stocks online need to see through the red haze temporarily emanating from their monitors to the truth. Nothing fundamentally has changed at Cisco or Sun Microsystems.

Nothing, that is, but their current trading prices.

So quit panicking and start buying. Over the long haul, technology stocks are going to deliver fantastic returns this year just as they did last year and the year before that and the year before that.

For all the "panic" out there, it's vital that investors and would-be investors understand that the Nasdaq composite closed at 2,500 points one year ago.

Even after the bloodbath of the past few weeks, the Nasdaq composite is still up 32 percent in the past 12 months.

Here are 10 reasons why smart investors will be long on technology stocks Monday morning.

  • 1. The bargains are too good to pass up
  • Just as average or bad stocks benefit from a general run-up in the market, good and great stocks are indiscriminately punished in a downturn. It doesn't make a whole lot of sense, but it is what it is.

    Take a gander at the likes of Cisco, Sun Microsystems and Microsoft.

    These are three of the best-known, best-performing technology stocks of all time. These companies are gold mines. They always beat earnings estimates while growing total sales by huge percentages.

    Since March 27, both Cisco and Microsoft are down 29 percent. Sun Microsystems, which clobbered the Street estimate last week, is off 28 percent.

    We'll accept that some of Microsoft's weakness is a direct result of its legal issues. Regardless, those legal issues won't be resolved for months or years. In the meantime, consumers are buying millions of units of its software.

    Microsoft's going to beat the Street when it reports its third-quarter earnings next week. It's just a matter of by how much.

    Cisco, which just split 2-for-1, will report earnings in early May. You can bank on it beating the Street estimate by a couple cents a share just as it has for 30-plus quarters in a row.

    Bottom line: There are tons of bargains out there and investors would be foolish to convince themselves that they're going to get much cheaper before they take off again.

  • 2. Tax season's over
  • One of the dirty little secrets playing out in the background of this recent carnage is the fact that so many people have made so much money off the market in the past year that they had to pay a ton of taxes this year.

    Guess what?

    All you option-exercising, freewheeling employees are going to have to pay taxes again next year too. Do yourself a favour and take some of your riches and start re-investing.

    You're going to need a 50 percent or 70 percent return on your investment to help cover the taxes you'll owe on stocks you've sold or will sell this year.

    It's a vicious cycle so you better be getting more of a return on your money than you're getting from that passbook savings account.

  • 3. Set an example to the rest of the world
  • Foreign markets are going to tank Monday as a result of our shenanigans. When they see "US" panic, they panic.

    Considering that foreign markets represent the fastest-growing segment of sales for technology vendors, we need to show faith not only in our technology but our markets.

    We can't afford to have foreign customers putting off buying computers, cell phones, routers and the like because they're losing their shirts in the market.

    As soon as the US markets recover, these markets will recover.

  • 4. Interest rates aren't going anywhere (for now)
  • There's been much consternation about interest rates in the past week, especially after a slightly tepid CPI report put the fear of God into every clueless investor walking around the Street Friday.

    Alan Greenspan and the rest of the Federal Reserve Board have raised interest rates five times in the past 18 months. They meet again in mid-May.

    All along, Greenspan's practically begged the market to cool off.

    Well, Al, it's downright chilly right now.

    In fact, the economy has probably only absorbed the second or third of those interest-rate hikes so far. It takes time for an adjustment in the nation's monetary policy to take hold.

    The last thing the economy needs is another rate hike, be it 25 basis points, 50 basis points or even 1/2 a basis point.

    Greenspan and Co. need to relax and let the economy run on its own for a while. Which leads to...

  • 5. Stop spending and start investing
  • For all the incredible wealth accumulated in this bull market, the average American isn't saving at even close to a commensurate rate. We're out buying M-Class Mercedeses, new homes and, from the looks of it, gourmet coffee in record numbers.

    Instead of doing the easy and more pleasurable thing, investors need to pump that money back into the market. Soon enough, you'll be buying even bigger and better things.

  • 6. It's time for the "rest of us" to get in
  • All you Gordon Gecko-wannabes can finally start putting your money where your mouths are.

    "I want to get into the market but everything's so expensive," said so many of you two months ago.

    Now you don't have any excuses. Take that bonus check or the $4,000 that's been collecting dust in your checking account and light that candle.

    By and large, only the filthy rich have been able to capitalise on this bull market. For the first time in years, the little guy actually has an opportunity to own some quality tech names at discounted prices.

    When the tech stocks return to glory, those of you on the sidelines will have no one to blame but yourselves.

  • 7. Earnings will provide the spark
  • It always seems to take something to get the market on a roll.

    Investors won't have to wait long as Microsoft, IBM and Intel headline a deluge of earnings reports this week.

    With the possible exception of IBM, which hasn't traded like a pure technology stock in quite some time, analysts are expecting blowout numbers from all of them.

    Don't be one of those guys caught buying the stock after the company beats the Street. In fact, you can still buy some Juniper Networks, Sun or PMC-Sierra on the cheap after all three beat estimates last week.

  • 8. Be selective
  • There are solid stocks out there just screaming to be bought right now. The trick, obviously, is picking the right stocks and executing without hesitation.

    Even if you're not sold on e-commerce or B2B or B2C, you can find a couple good stocks in sectors you do believe in. Use a little common sense.

    Instead of blindly throwing money at a group or the latest "hot" sector, do a little research. Ask around. Find a stock that you know something about and buy it.

    Those who make the right choices now, like the investors who bought Qualcomm this time last year, will find themselves dealing with the pleasant problem of capital gains taxes next year.

  • 9. Listen to the experts
  • Leading financial analysts tend to get more credit and, perhaps, credibility than they should.

    In fact, someone as "influential" as Goldman Sach's Abby Joseph Cohen played a small roll in sending the market into its free fall in the past two weeks.

    Cohen spooked the market recently when she trimmed the proportion of assets she advises clients to keep in stocks.

    Looks like a good move to me, considering the Nasdaq lost 27 percent of its value in five trading days.

    On Friday, Cohen said corporate earnings will help the markets recover

    "I think what we have seen (Friday) is very much a market event rather than an economic event," Cohen said on CNBC. "As we take a look at our expectations for earnings, economic growth and so on, really nothing has changed over the past two weeks."

    While people like Cohen are offering up rational views such as those, others are fueling the panic.

    "The loathing and trepidation has gone very rapidly from zero to 110 percent," said Scott Bleier, chief investment strategist at Prime Charter Ltd.

    Bleier's emotional explanation may be true, but that doesn't make it right.

    Take a look at any 12-month chart for the Nasdaq or the Dow and you'll see at least one huge dip followed by a dramatic run-up. Why would this time be any different?

  • 10. Show some backbone
  • Ultimately, after all the charts and earnings reports and analyst recommendations are factored in, it still comes down to whether or not individual traders believe in technology and the economic power of those technologies.

    If you believe consumers are going to stop buying software, routers, cell phones, PCs, wireless equipment, printers and the like, then you shouldn't buy technology stocks.

    If you believe the Internet is just a passing fad or a cute pastime that will never generate revenue and profits, stay on the sidelines.

    Otherwise you should buy as much technology stock as you can afford and check back on the gutless fools that didn't six months from now.

    What do you think? Tell the Mailroom. And read what others have said.

    See ZDII for US tech investor news.

    See techTrader for more technology investment news, plus quotes and research.

    Editorial standards