Many technology stocks have provided excellent returns year-to-date. With recent improvements in the labor market (with U.S. Unemployment rate dropping from a recent high of 10% in October 2009 to 8.3% in January 2012), rising consumer confidence (with the Conference Board Consumer Confidence Index rising from 61.5 in January to 70.8 in February), and a growing economy (with 3% GDP growth rate for the fourth quarter in 2011), there may be support for yet higher share prices for leading technology companies.
U.S. Unemployment Rate
Source: Bureau of Labor Statistics
Sometimes it is not necessary to look for the "next" Microsoft (MSFT), or the "next" Apple (AAPL). A recovering business and consumer environment can provide good momentum for existing large capitalization companies with best in class products and services.
Five such companies that stand aside from the rest are Intel, Inc. (INTC), International Business Machines (IBM), Apple Inc. , Microsoft Corporation and Cisco Systems, Inc. (CSCO). We compiled our own market capitalization weighted index for such five stocks, call it "Big5TekTM", with a base price of 100 as of 12/30/2011. As of 3/2/2012, Big5TekTM is up 21.6% at 121.56, and when adjusted for dividends, it is up 22%.
The selection for such companies was based on our belief that they are the leaders within their domain: Apple, for consumer electronic products, IBM, for computing services and large scale hardware, Microsoft, for software development, Intel, for processing chips, and Cisco, for internet protocol networking and communication. In a resurging economy, such shares can continue to appreciate further during the next few months from current levels.
Individually, as of 3/2/2012, the shares of these companies have increased anywhere from 8.54% for IBM, to 34.6% for Apple.
Stock Price Change (Year-to-Date)
| Company | price as of 12/30/2011 | Price as of 3/2/2012 | Percent Change |
| Cisco | 18.02* | 19.76 | +9.66% |
| Microsoft | 25.79* | 32.08 | +24.39% |
| Intel | 24.06* | 26.92 | +11.59% |
| IBM | 183.17* | 198.81 | +8.54% |
| Apple | 405* | 545.18 | +34.6% |
| Big5TekTM | 99.66** | 121.56 | +22% |
**Price adjusted for splits and dividends.
In an article we published on August 19, 2011 "3 Attractive Technology Stocks for the Long Haul", we discussed the positive prospects for IBM, Apple and Google (GOOG) and given the prevailing market fears at that time, we believed it was a good opportunity to purchase their stocks for the long haul. Since then, Apple has appreciated by 48.9% from $366.05 to $545.18, IBM has appreciated by 22.3% from $162.54* to $198.81 and Google has appreciated by 23% from $504.88 to $621.25.
Although Google may continue to do well as it should benefit from an improving economic environment in the U.S., it became evident in its latest earnings release for the fourth quarter of 2011 that it is exposed to the weakness in the European economy, as well as the falling Euro. At this time, there is no indication that such trend for the Euro has changed, and until it becomes clear that Google's earnings can overcome such hurdle, it may be wiser to book profits on Google.
There is no question that a falling Euro can also negatively impact the dollar denominated international revenues of IBM, Apple, Cisco, Intel and Microsoft. However, any appreciation in the dollar would be a result of a resurging U.S. economy, and in such case, the improved U.S. business and consumer environment is likely to offset any negative currency implications.
Given recent appreciation in the market, it is indeed tempting for investors to book profits. Those who are risk averse may very well chose to do so and wait for a possible pullback to purchase again. However, as long as the current economic data continues to indicate improvement in the business and consumer environment, from a macro perspective, shares of best in class large cap technology companies can continue to move higher.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL, IBM, INTC, CSCO, MSFT over the next 72 hours.
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