With Apple, Microsoft and Google, three technology companies lead the ranking of the most valuable companies listed on the stock exchange for the first time. The rise of technology shares is not finished yet. Mountains of cash, great innovative power and high growth rates continue to attract investors.
June 23, 2015. Three technology companies lead the ranking of the most valuable companies listed on the stock exchange for the first time. This information, which seems insignificant at first glance, in fact reflects a new world order. High-tech industry has finally eclipsed the old economy on the stock market. The global ranking of stock market giants is led by Apple with market capitalisation of around 750 billion dollars, putting the manufacturer of iPhones and MacBooks in a class of its own. Microsoft, number two on the stock market, lags far behind with 380 billion dollars – closely followed by Google, the company synonymous with internet searches. After many years of stock market dominance, Exxon has been strongly affected by the fall in oil prices and must watch the battle for the top positions from a distance in sixth place. General Electric does not even manage a place in the top ten.
A bull market on the NASDAQ lies behind the rise of technology shares. The prices of technology shares have been rising fast for six years almost without interruption. The technology-oriented NASDAQ 100 has climbed from 1,058 points on 9 March 2009 to over 4,500 points in recent times. That puts it only 12% off the all-time high of 5,048.62 points – reached in March 2000, shortly before the dot-com bubble burst.
But, in contrast to 2000, the prospects for further gains are good. Unlike back then, the stock prices are based on a solid foundation. Rather than dreams of unrealistic growth, sturdy business models with huge turnovers and high cash flows are on offer. Solid balance sheets with huge cash reserves are also part of the situation today. The average technology company in the S&P 500 index now holds 30% of its wealth in cash. The three stock market giants, Apple, Google and Microsoft, have available liquid funds totalling 330 billion dollars. At the same time, the managers are no longer sitting on their money, but rather returning it to shareholders in the form of share buy-backs and dividends.
Targets are high, but achievable
The chances of growth are being more realistically assessed by the companies, but remain high. The companies in the MSCI World Information Technology Index estimate a growth in operational profit of 16% in 2015. Global shares just reach an eighth of that figure with 2%. ‘The targets are high, but achievable,’ says Anders Tandberg-Johansen, Head of Global Technology and leading Fund Manager at Scandinavian asset management company DNB.
Following the six-year rise in the market, technology shares are no longer a bargain, but are still seen as a comparatively attractive option. The price–earnings ratio based on the anticipated 2015 profits is around 17. Despite notably lower growth rates, global shares are not far behind, with a PER of 15.
Oracle and SAP on the buy list
The older the bull market gets, the more demand there is for expertise in the selection of technology investments. DNB Fund Manager Tandberg-Johansen looks to hunt down value that the broad market is not yet aware of. Companies such as the online gaming software developer Playtech, with annual growth of 20 to 30%, are in this category. At the same time, Tandberg-Johansen also makes use of exaggerations. The fund manager is convinced that shares such as Oracle and SAP are currently available far too cheaply. With a focus on research and development, deficits in the cloud sector, for example, should be recovered, he feels. In addition, the growth of the US economy should increase expenditure in the IT sector again. Oracle and SAP, who are company-oriented, should profit from this in particular.
Tandberg-Johansen’s strategies have been bearing fruit for more than a decade. His fund, which has been managed by a stable team since 2001, has an average annual performance of almost 20% over a five-year period and is far ahead of both the market and comparable fund providers.
