Some Diamonds in the Rough-and-Tumble Tech Market

Technology stocks are trading at a discount to the market: 13.8x forward earnings vs. 15.7x for the S&P 500. Only banks and energy stocks are cheaper right now. This doesn't happen often. In fact, charting the P/E multiple for the S&P Tech sector reveals that tech valuation currently sits near multi-decade lows.

Investors have clearly fallen OUT of love with tech. Gone are the heady days of bull markets past (2000 and 2007 come to mind), but investors have their reasons. Simply put, the technology sector as a whole isn't growing the way it once was. Consider the most recent quarterly earnings reports for some of the group's bellwethers:

No love indeed!

So today we focus on looking past the laggards and FINDING GROWTH within technology. We screened 200 tech companies for estimated earnings growth of at least 20% both this year and next, based on consensus estimates by analysts tracked by Bloomberg. Twelve companies made our list, and similar to Friday's blog, smaller companies are leading.

PIMCO's Bill Gross has dubbed the current 2% GDP environment "the new normal" because he thinks limited job creation, housing overhang and low inflation will conspire to keep the economy from returning to a higher level of output. In this context, smaller companies pursuing niche markets may indeed be better positioned to grow than their larger brethren. We think the market has already cast its own vote:

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