Thursday October 9, 11:08 AM
FUND VIEW-US tech stocks offer earnings defence - Henderson
SINGAPORE, Oct 9 (Reuters) - Investors should buy U.S. tech stocks with strong balance sheets such as IBM (NYSE: IBM - news) , but avoid Taiwanese
electronics firms like Hon Hai which have high fixed costs, Henderson Global Investors said on Thursday.
Henderson, which manages over $1.2 billion of technology assets, favours the U.S. software, communications and semiconductor sectors.
Its top holdings include heavyweights like International Business Machines, Intel Corp (NASDAQ: INTC - news) , Microsoft Corp (NASDAQ: MSFT - news) and Cisco Systems Inc (NASDAQ: CSCO - news) .
'The global financial sector is reeling from the bursting of the credit bubble, but technology companies have dealt with their excesses a long time ago -- tech is probably the only sector in the S&P 500 index where cash on companies' balance sheets is worth more than debt,' said fund manager Stuart O'Gorman. O'Gorman said he expected investor demand for these stocks to accelerate towards the end of the March quarter next year, after the market had digested the slew of earnings downgrades for the sector that would likely emerge over the next few months.
'In Q4, you are going to start seeing earnings estimates coming down, but it's going to be 15 percent lower, rather than 40-50 percent lower compared to other sectors,' he said.
'Tech may not be a growth sector, but it is an earnings defence sector, where there is a relative lack of earnings collapse.'
But investors should steer clear of Taiwanese electronics firms such as flat panel display maker AU Optronics Corp and contract chip maker Taiwan Semiconductor Manufacturing Co Ltd, due to their high fixed cost bases, even though these firms may be fairly well managed, O'Gorman said.
Japanese firms also have good technology offerings, but the yen's recent surge and their reluctance to lay off employees due to cultural reasons would hurt their outlook.
An exception was Nintendo Co Ltd (Berlin: NTO.BE - news) , thanks to the success of its Wii game console.
'Most Asian tech companies are highly exposed to Western consumers and have little in the way of barriers to entry,' he added.
(Editing by Lincoln Feast) Keywords: HENDERSON/TECH . Keywords: HENDERSON/TECH
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