Technology stocks are not for the faint of heart. The business cycle exists, and companies have to continually re-invent themselves or get left in the dust, especially among technology stocks, where consumers will pay almost anything for innovation. The smartphone industry is the perfect example. BlackBerry (NASDAQ/BBRY;TSX/RIM), formerly Research In Motion Limited, dropped the ball on what was an outstanding leading position in the smartphone revolution. How about personal computers (PCs)? Dell Inc. (NASDAQ/DELL) is now a partial contributor to its own operational weakness because of the extreme commoditization of the PC that it helped foster. But Dell’s been struggling on the stock market for the last five years.
Among technology stocks, I’d steer clear of the retail landscape, because the competition is intense; due to the unpredictability of innovation, the corporate advantage changes too quickly. If I was to build a position in only one technology company for an investment lasting greater than three years, I’d choose Oracle Corporation (NASDAQ/ORCL) on any major price weakness.
I like Oracle because of the business that it’s in—selling database and cloud software and hardware to well-heeled corporate and government clients that pay their bills on time. Unlike many technology stocks, Oracle isn’t expensively priced on the stock market, and it pays a small dividend. Finally, I like Oracle because of its excellent long-term track record on the stock market. In my view, an investor is doing well if he or she can double their money every six years or so. Oracle comes close to fitting that bill. The company’s long-term stock chart is below:
Chart courtesy of www.StockCharts.com
Like many technology stocks, Oracle got a bit ahead of itself in 1999/2000. But just about everything on the stock market did during the late 1990s. If you eliminate that unusual price spike, the company’s long-term wealth creation on the stock market is substantial and consistent. There’s a reason why Larry Ellison, the company’s founder, is the third-richest person in the U.S. He still owns just under a quarter of Oracle’s total shares outstanding.
Technology stocks are a risky sector of the stock market, but Oracle’s like a blue chip name within the group. But because the company isn’t competing to offer its services at the lowest possible price, as a business model, it has a lot more staying power. Maturity in enterprise information technology (IT) is actually a good thing.
The stock market has a few more legs over the near term, but I feel the probability of correction is high. There are a lot of potential shocks this year, and unless the economic news points to recession in the U.S. economy, I would be adding to blue chip names that pay dividends. Among technology stocks, I like Oracle. My other favorites include my list of “Super Stocks” that I feel long-term stock market investors can accumulate when they’re down. (See “Super Stocks—Great Companies for Any Stock Market Portfolio.”) None of these favorites are retail technology stocks.
The Federal Reserve has done a great job of killing conservative, responsible savers in this economy. Instead of letting the business cycle play out on its own (which is painful) we live in this artificial monetary world where nobody knows the true value of his or her money.
Technology stocks and the rest of the stock market had a great start to the year, but I’m very wary going forward. I’m not bearish, just practical. Most of the stock market’s best stocks have already gone up. I wouldn’t be a new buyer until they come down.