Technology Stocks: Invest in Them or Run for the Hills?

Technology Stocks: Near-term Risk, But Long-term GainsOracle Corporation (NASDAQ/ORCL) is a bellwether on the condition of global technology spending, so it’s not a surprise to see some anxiety in technology stocks after the global tech giant reported an earnings shortfall in its fiscal second quarter and warned of some slowing in spending. It was the first earnings miss for Oracle in a decade. While it does not immediately sound the alarm for technology stocks, there is some anxiety that companies are holding back on tech spending. This may indicate a downturn in overall spending, which will drive stalling in the global economies.

The results were not limited to Oracle in the large-cap technology stocks space, but recently we also saw soft results and guidance from other bellwether stocks including Intel Corporation (NASDAQ/INTC), Dell Inc. (NASDAQ/DELL), and Hewlett-Packard Company (NYSE/HPQ). There was a common thread running through the reasons given for the shortfalls: blame the stalling global economies. With the debt issues inEuropeand muted growth there, companies are delaying their spending on technology upgrades. The same goes forChinaand theUnited States.

While I’m positive on technology stocks in the longer term, the near term is another story. The tech-laden NASDAQ is trading below its 50-day and 200-day moving averages and looks to close negative for the year unless we see a strong Santa Claus Rally next week. Traders are clearly apprehensive about technology stocks, as demonstrated by the fact that there has only been one bullish investor sentiment reading since October 31 and a mere six bullish readings since July 26, which is 103 sessions. This shows a lack of confidence.

The cautious climate for technology stocks and the overall market risk is also impacting initial public offerings (IPOs), which would have surged in a strong market. Not so at this time.

Internet gaming developer Zynga Inc. (NASDAQ/ZNGA) debuted in a $1.0-billion offering, or at $10.00 a share, on December 16. Hoping to cash in on the interest in social media plays, Zynga—a developer of the widely popular online games such as CityVille, FarmVille, and Mafia Wars—failed to inspire traders and has in fact fallen below its IPO price on overall disinterest.

Jive Software, Inc. (NASDAQ/JIVE), a developer of social business software, surged 25% on its first day of trading to close at just over $15.00 after trading at $16.50. The stock is holding just above $15.00, but may head lower if tech drifts down.

While I’m cautious in the near term, I continue to feel that technology stocks will be a critical area for growth opportunities going forward. The sector to watch for the best investment opportunity is the area of mobility applications for tablets and smartphones, as users shift away from the more cumbersome PCs and laptops. Apple Inc. (NASDAQ/AAPL) is the “best of breed” as far as technology stocks go in my view. Microsoft Corporation (NASDAQ/MSFT) also is worth a look as it gets set to launch its new smartphones with Nokia Corporation (NYSE/NOK) in its battle against “iPhones” and “Android” phones.

In the meantime, you could protect against possible weakness in technology stocks by buying index put options on the Powershares QQQ (NASDAQ) or by playing a potential aggressive downward slide in technology via the Direxion Technology Bear 3X (TYP).

In addition to liking technology in the long term, I also favor alternative energy plays, which I discussed in The Alternative to Being Held Hostage by Oil-rich Companies.