A lot has changed since Nortel. Valuations are reasonable now, and technology offers solid growth in an unpromising market.
Looking for growth? If you’re feeling brave, I know where you can find it: technology stocks. I know, you wore off the sector after losing your shirt on Nortel back in 2001. That turned out to be a wise move. If you invested in a technology fund 10 years ago, you would now be looking at an average loss of nearly 10% per year.
But it’s different now. Really. Technology stocks are no longer grossly over-valued, for starters. The whole sector has come crashing down to earth. Not only is the sector more attractive by historical standards, but arguably, compared to most other market sectors as well.
Today, the average price-to-earnings (P/E) ratio of a typical U.S. technology mutual fund is 21 times. That’s approximately half of what it was 10 years ago. In March of 2000, at the crest of the dot-com bubble, the NASDAQ Index average P/E ratio peaked at an absurd 47 times earnings. It’s true that a P/E ratio of 21 is still high compared to the overall S&P 500 average of 16. However, technology stocks have always commanded a sizeable valuation premium over other sectors, and there are some good reasons for that. You might not want to jump in with both feet, but here are five good reasons why it’s time to give tech stocks another chance.
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