Master Rider Blog

Tech Sector

September 4th, 2007 NW Teong

While this sector is not a screaming buy at the moment, it is definitely worth monitoring from now on.

There are quite a number of tech stocks (in Singapore) that under my watch list look rather interesting at current level. In fact, some of them are at the level that I could add them to my portfolio. Obviously, under current scenario, one can afford to add gradually. In short, I can be a little fussy on the price (hence cheaper valuation) that I buy. I can tell you I am ultra conservative as far as investment in this sector is concerned. I am mostly looking at stocks that normally trade at under 10X current 2007 PERs (a couple of them actually trade at less than or about 5X only!), fundamentally sound (definitely profitable), and most of these also give me between 3.5% to 5% dividend yield. Even in the worst case scenario, I am very likely to still collect a yield that is higher than the pathetic interest rates that the banks in Singapore are giving me! FYI, I am likely to finish my buying of tech stocks after the anniversary of 911 but before the FOMC meeting on 18 Sept.

My rational? 1) I like tech stocks for their cyclicality. I really like cyclical stocks where I can execute my investrate strategy to the max effect. 2) I am taking a calculated risk that traditionally last quarter is very good for tech stocks where the demand for tech products is also the highest in a year. 3) I am prepared to hold at least 3-6 months for my tech stocks. 4) Blue chips versus my tech stocks. The risk and reward profile in my opinion favour the tech stocks at this moment. Blue chips are really vulnerable to event risk and the upside is really limited at this moment. In the event that there is a cyclical up turn in tech, I reckon my tech stocks would clearly out-perform those blue chips. 5) Most importantly, they are fundamentally sound, cheap valuation and give me good dividend yield!

Please note that I am not saying that the tech sector has started to turn around, not yet! If you, like me also monitor the semicon book to bill ratio (please refer to my blog on this topic dated 20 Aug), we know that this ratio is still on the down trend. I, for one will monitor this ratio closely to gauge the cyclicality of this whole sector. However, I wish to park my position in tech stocks way before others do and besides I prefer to invest in my own Master Rider’s way. As I mentioned before, I have no qualm of buying stocks that I like at this moment even though I feel that Dow is downward bias in the next few trading days. Like what I have shared with you, buy stocks with good potential and at the same time hedge them by buying put option/warrant of the relevant indices.

Caution: You need to be selective and prepare to hold at least till end of the year to see good returns. During this period, please continue to monitor key macro indicators! Of course, you do not invest 100% of your fund in this sector, recall those stocks that I shared with you in the construction sector? Diversification has its own merits if we really do understand the essence of its meaning. Cheers!

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Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.

Entry Filed under: Macro, Stocks, Singapore