If hot sectors excite you, tech has got to be on your radar screen. It's been a top performer for years, and shows no signs of a slowdown.
But some worry it may be too hot, and is at or near a bubble, making it risky. To choose my recommendations, I use automated strategies I based on the writings of some of the greatest investors of all time, like Benjamin Graham, Peter Lynch and Warren Buffett. If one of these really likes a stock, I feel confident to recommend it.
Yet, concern about a bubble makes me a bit hesitant to recommend some tech stocks. So I recently looked for stocks in the sector that earn strong recommendations from not one but two of my guru strategies. If two strategies are jumping up and down and proclaiming a stock a winner, chances are especially good it will perform well.
One tech stock with two guru recommendations is that bluest of bluebloods, Big Blue itself, IBM (IBM), which today is heavily into IT services. My strategy based on James O'Shaughnessy's writings likes IBM because of its huge market cap, strong cash flow per share, large number of shares outstanding and enormous sales, which all come topped with a dividend yield of 3.03%, which is pretty darned good in today's low-interest-rate environment.
The second guru strategy in IBM's corner is based on Joel Greenblatt's approach to investing. This strategy focuses on two variables -- earnings yield and return on total capital -- which it uses to rank a stock from among all domestically traded ones. IBM comes in at No. 30 among these thousands of stocks, earning it a strong Greenblatt-strategy recommendation. The O'Shaughnessy and Greenblatt analyses tell us IBM is performing well financially and has a well-priced stock.
CGI Group (GIB) is a Canadian-based IT services provider that operates in North America and Europe and has 68,000 employees. Like IBM, CGI earns the respect of my Greenblatt strategy by having a ranking of 28th among all stocks. The second CGI fan is a strategy I created from Peter Lynch's writings. It emphasizes the P/E/G ratio, which is price-to-earnings relative to growth, and measures how much the investor is paying for growth. A P/E/G up to 1.0 is acceptable; CGI is well below this ceiling at 0.88.
IBM and CGI have several factors in their favor: They are major players in a strong market, are well managed, financially strong and well priced. Plus, of course, they get strong recommendations from two guru strategies. If you want to add tech to your portfolio mix but not take too much of a flier, these stocks earn your consideration.