Investors can divide technology stocks into two camps: newer, Internet-based companies such as Salesforce.com, and more established businesses, such as IBM, Intel and Oracle.
So says Mark Lin, vice-president and portfolio manager at CIBC Asset Management, and manager of the Renaissance Global Science and Technology Fund.
Established companies such as IBM, Intel and Oracle tend to trade at lower multiples, and offer sound market value compared to cash profitability. “The names we own strike a balance between growth and valuation. We try to find stocks that can generate consistent growth.”
Lin’s portfolio does include some Internet-based stocks such as Priceline.com, a web portal that aggregates flight tickets, hotels and car rentals. “It’s considered an Internet company operating in the consumer space. But as opposed to some of the other cloud-based companies, Priceline.com generates tremendous profit. It is trading at 17.3 times 2016 earnings – and currently at less than 21 times – and can continue to grow in the double digits. This is the kind of investments we’re looking for,” Lin says.
His stock-picking process involves discounting the future cash flow of the companies in the portfolio back to today’s number. If this number matches market value, the stock isn’t considered over-valued. “Even though a lot of stocks trade at higher multiples, they’re attractive because they’re growing their cash profit over time, rather than just delivering growth at the revenue level,” Lin says.