by Jason Norris, CFASenior Vice President of Research
Three Is the Magic Number It’s been a week of milestones; we saw the Dow Jones Industrials crack 13,000—the first time since May 2008. The NASDAQ breached the 3,000-point level for the first time since December 2000 and Apple became the fifth company ever to cross the $500 billion in market capitalization. While the two indices couldn’t hold their respective levels, Apple continued its move upward throughout the week. The stock is up 30 percent since they reported earnings five short weeks ago. It will be interesting to see if investors sell the stock after the release of the iPad 3 on March 7. We continue to like the growth profile and view it as a core holding.
Tech Makes the Word Go ‘Round Speaking of technology stocks, there were two major events this last week for industry analysts. The City of Barcelona hosted the Mobile World Conference where vendors demonstrated new products and highlighted major announcements and relationships. Morgan Stanley also hosted its annual technology conference in San Francisco.
Consistent themes across both conferences were rapid growth in Internet data applications and expansion of the Cloud. As wireless networks increase their data speeds, the use of data centers grows exponentially, rather than storage directly on devices. With Apple's announcement of the iPad 3, which will offer HD video quality, more data will be streaming over wireless and wire-line networks; and the data will have to be stored someplace as well as managed securely.
Getting Paid for Investments A theme that came across at the Morgan Stanley Tech Conference was the use of cash and dividends. A few short years ago, talk of dividends at a tech conference would be blasphemous, but now with the hoards of cash on corporate balance sheets, dividends have become a topic of discussion. One wild card is the proposed changes in the dividend-tax rate. We don't believe that this proposed change will have a major impact on the value of the equity market; however, corporate finance will be affected. Companies may choose to buy back stock, rather than issue or raise dividends. This would make it even harder for investors looking for income to find it.
Our Takeaway from the Week We continue to overweight tech due to strong product cycles and healthy balance sheets.