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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.

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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.”

Read: Outlook optimistic for tech sector

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.

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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.

Read:

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Originally published on Advisor.ca

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