Old School Tech Stocks Persevere

 | Apr 16, 2014 | 2:30 PM EDT  | Comments
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There is a line in the sand that has been drawn in technology industry. On one side you have the glamorous – the social media darlings like Facebook (FB) and Twitter (TWTR), retailer Amazon (AMZN), and other exciting names like Netflix (NFLX). In 2013, Mr. Market paid up for glamour and delivered triple digit gains for these exciting companies.

On the other side, you have the elderly, not so glamorous, statesmen like Intel (INTC), Cisco (CSCO), IBM (IBM), and Microsoft (MSFT).  Intel proved yet again on Tuesday that glamour, through the passage of time, always fades away. Quality and strength, however, can remain with you for much longer.

Intel reported earnings Tuesday that showed a 5% decline in profitability year-over- year. In addition, most of its forward guidance was in line with expectations -- no signs of that sexy growth that our glamorous group are accustomed to.

All in all, it was a solid earnings report but far short of anything that would excite analysts as it relates to future growth. Intel shares rose on the news. So far in 2014, Intel shares are up nearly 4%. Bake in the annual dividend, and Intel shares will finish the year up over 7%. By comparison, the Nasdaq is down nearly 4% year to date, while the S&P is down 1%.

The reaction to Intel's report illustrates how the market is making a shift to quality and value over growth and glamour. So far this year, Twitter shares are down nearly 35%, Netflix is down 10%, and Amazon shares are down 20%, respectively. Facebook shares are up 8% year to date, thanks to a few quarters of strong profitability growth, but are down over 15% in the last month when the Nasdaq began its sell off.  

Canadian investor Prem Watsa of Fairfax Financial Holdings recently addressed the situation at a shareholders meeting. Watsa said that the valuations being assigned to this new age group of tech stocks is going to lead to a lot of heartburn to investors who follow them blindly chasing growth

Watsa said it was 1999 all over again where some of these valuations were concerned. Watsa's firm is a large shareholder in Blackberry (BBRY), a company that was once a tech darling with a stock price of $60. Now shares trade for $7 and most investors don't want to touch it. Watsa sees it as a bargain.  

The more things change, the more they stay the same. There will always be market bubbles but that doesn't mean you have to go along for the ride. No bubble in history went on forever. They all pop. This one will too.

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