investing

No Bubble for Tech Stocks

Microsoft is a deal, but some social media firms will go bust.

With Web-based startups flooding the market of initial public offerings and stocks of a few social-media companies reaching sky-high valuations, many investors may be experiencing a bit of déjà vu. But David Eiswert, manager of the T. Rowe Price Global Technology Fund (symbol PRGTX), says this is not a repeat of the dot-com bubble of the late 1990s. The following is an excerpt of our recent conversation with him.

KIPLINGER: Is there another tech-stock bubble on Wall Street?

EISWERT: No. Tech stocks could be due for a pullback, but if that happens, I’ll be buying. There are big opportunities for growth, thanks to new demand from developing nations, new trends in mobile and cloud computing, and the accelerating pace at which people are purchasing and using these new technologies. Tech companies are also sitting on the most cash held by any market sector, ever. Adjusting for these factors, tech stocks are cheap—especially large-company tech stocks.

What about social media stocks? Do you see a bubble there? There will be some huge winners in social media, and other stocks will go to zero. The stocks look expensive based on their prices relative to company earnings, but some are more expensive than they look and some are cheaper, based on long-term prospects. We think LinkedIn (symbol LNKD) will be a winner. The company has 150 million users and a potential global market. Users could double in the next two to three years. How hard is it to imagine that every college student and working person will have a LinkedIn account?

Are there other good social media bets now? Which ones would you avoid? Angie’s List (ANGI), the consumer-review Web site, is attractive. The company has a great local-commerce database that it’s just starting to make money on. Groupon (GRPN) is riskier (see 6 Stocks to Sell Now). It’s not clear what the company’s competitive advantage will be and how much of the local-commerce market it can capture. Because its future is more uncertain, the stock is less attractive.

What are some of your other favorite tech com­panies now? Microsoft (MSFT) is cheap, and Windows 8, due out later this year, is a chance for the company to find new growth in the mobile-device market. We like Juniper Networks (JNPR), which lowers the cost of Internet traffic for AT&T and other telecom networks, and we like Informatica (INFA) and Tibco (TIBX), both of which enhance the flow of data, allowing investors to cash in on the explosion of information.

Follow Jennifer on Twitter or become her fan on Facebook.

ORDER NOW: Buy Kiplinger’s Mutual Funds 2012 special issue for in-depth guidance on the only investments you need.

Most Popular

15 Stocks Warren Buffett Is Buying (And 7 He's Selling)
stocks

15 Stocks Warren Buffett Is Buying (And 7 He's Selling)

Berkshire Hathaway CEO Warren Buffett is a bull once more! The Oracle and his team entered eight new positions and added to others in a big way.
May 17, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The Best Stocks for a Bear Market
stocks to buy

The Best Stocks for a Bear Market

The ideal bear-market stock pick should have a defensive business, a long history of dividend growth and relatively low volatility. Here are 10 stocks…
May 18, 2022

Recommended

Kiplinger's Weekly Earnings Calendar
stocks

Kiplinger's Weekly Earnings Calendar

Check out our earnings calendar for the upcoming week, as well as our previews of the more noteworthy reports.
May 20, 2022
An Impact Investing Guide for Private Foundations
investing

An Impact Investing Guide for Private Foundations

Putting assets in service of mission can take many forms. Here are four distinct approaches to consider in your efforts to foster positive change in o…
May 19, 2022
The Berkshire Hathaway Portfolio: All 47 Warren Buffett Stocks Ranked
stocks

The Berkshire Hathaway Portfolio: All 47 Warren Buffett Stocks Ranked

The Berkshire Hathaway portfolio is a diverse set of blue chips, and increasingly, lesser-known growth bets. Here's a look at every stock picked by Wa…
May 17, 2022
8 Facts You Must Know About Bear Markets
investing

8 Facts You Must Know About Bear Markets

Bear markets can be terrifying, but they're normal, inevitable and – most importantly – don't last forever.
May 13, 2022