Technology stocks have performed unusually well in 2009, and many analysts believe the outlook remains sunny. Investors should know that tech stocks offer different risks and rewards. Considerations:
n Lower your dividend expectations. Established companies in traditional industries are the most likely to pay more dividends to investors looking for steady income from their stocks. Tech companies prefer to put extra cash to work.
n Use a different yardstick. A common tool to gauge whether a stock is worth buying is its price-to-earnings ratio, a stock’s price divided by the company’s earnings per share over the prior 12 months. The lower the P/E ratio, the cheaper the stock is considered. A ratio of 15 has historically been a rough threshold to determine whether a stock is cheap or expensive.
n Brace for volatility. You can expect younger tech companies’ stocks to take a bumpy ride.
n Expect currency risk. Many big U.S. tech companies rely heavily on overseas sales. That means profits shift along with fluctuations in the dollar’s value.
n Prepare to get lean. Technology’s relentless advance puts tech companies under continual pressure.
The Associated Press
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