Tech Themes for 2010
This sector will help lead the markets to growth this year.
Broadly, I think this year will be dictated by the transition from a world where stocks only rise as the US dollar falls to a market where dollar strength becomes supportive of US stock prices (as well as China, Australia, and select emerging markets).
Much of the media and negative pundits will continue to say that various financial government stimulus packages are the main reason that stocks and certain economic indicators/measures are rising, and until this prevailing sentiment shifts, the stock market bulls will likely be rewarded.
I still see GDP growth and jobs improvement well above consensus, as I did last year.
Interestingly, many government work programs will be put into existence and more real stimulus money will be infused into the economy than in 2009. Certain sectors are poised to benefit even more compared to the prior year and finding spillover-effect stock plays will provide notable alpha.
Finally, in my bailiwick (technology), web-based video (3-D TV?), bandwidth, and touch-screen technologies will come to the fore again as the promise of 2000 will become realized in 2010.
1. Starting the themes with a master of the obvious call. I see extremely low rates through 2011 -- with my range being 0 bps to 75 bps of tightening and my gut feel that we see the Federal Reserve remove its 0 bps to 25 bps funds rate and replace it with either a 25 bps or 50 bps (or a 25 bps to 50bps floating) funds rate.
This should continue to spur stronger-than-expected economic activity, so I'm sticking with my highly variant view (through 2009) of a stronger recovery and GDP growth than commonly expected while inflation remains benign.
2. Even though we've seen strong stock performance out of the networking and data storage, I'm essentially repeating this theme from last year:
We already have approved a $45 billion to $50 billion government broadband and security infrastructure package that's ready to roll over the next few years. Networking, security, and strong ERP and data storage firms will benefit most.
The only changes I'll make are emphasizing networking and data storage firms and deemphasizing security and ERP firms as they materially outperformed during 2009.
I think Cisco (CSCO), Broadcom (BRCM), EZchip Semiconductor (EZCH), and VMware (VMW) are names to note and reasonably priced, but there are a host of others that will benefit greatly.
3. Dogs of the Dow. I think this strategy will make a comeback and start beating the Dow again. I also like stocks that resume solid dividend payouts and/or exhibit strong dividend growth rates. This should be one of the factors helping banks produce sizable upside in 2010.
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