US technology stocks were the 2nd best industry of the last decade. However, the same has now fallen to the cheapest levels in the last 7 years and these are vulnerable to further losses. Many analysts have already reduced the 2nd quarter profit estimates of this industry.
As far as analysts estimates are concerned, the earnings at the technology companies are expected to decline by 5.5% in the next 3 months through June as Government agencies and consumers cut spending. The group which is led by Apple and International Business Machines Corp. is currently trading at 13 times of its projected profit, marking the lowest level if compared with the benchmark gauge of US stocks, the Standard & Poor’s 500 Index, since 2006.
Bulls believe that an unprecedented discount will mean that the technology stocks which tend to lead during the expansions are very cheap to pass up as the global economy shows growth. On the other hand, the bears feel that the shares will stay the worst performing group in the benchmark stock gauge of US in this year as most companies and also Government are spending less on the technology industry. The growth for this industry has weakened in the markets such as China and Europe as well. Apart from that, the proposed budget of Barack Obama is set to reduce spending on the information technology sector by $2.5 billion within 2015, as predicted by the industry leaders.
According to the Fund Manager of Huntington Asset Advisors, Peter Sorrentino, he has talked with various managers and he feels that they will be sitting on their budgets until the end of the current year. On last year, Sorrentino sold shares of companies such as Apple and Accenture. Sorrentino added that the economy is going to flatline for a while, mainly because of the disappointing numbers coming out of China. Sorrentino commented further that there is no real catalyst which will play a major part in ramping up the production.
The 2nd biggest company in the world by market value, Apple posted its first profit drop in the last 10 years and also announced that the sales are expected to be lower than what analysts estimated for the current quarter. It added that the company is planning to return around $55 billion to shareholders through dividends and buybacks.