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  1. Home
  2. / Investing
  3. / Technology

Grit Your Teeth and Scoop These Up

It would be risky to buy these out-of-favor names, but it's probably the right thing to do for the rest of this year.
By ERIC JACKSON Sep 15, 2011 | 09:30 AM EDT
Stocks quotes in this article: MSFT, CSCO, HPQ, JNPR, OPEN, RVBD, AKAM, DANG, RENN

If you want to be in the market, do you want to own old tech or new tech? It really depends what style of investment you are interested in -- but, even then, you need to separate within stocks under the "old" and "new" categories.

If you are close to retirement (i.e., within the next six years), you are probably thinking of security and safety. A name such as Microsoft (MSFT) is going to be very appealing because it has a franchise and a steady dividend. What's more, it's already cheap. All of these things make Microsoft very appealing to that type of investor.

But then you have names such as Cisco (CSCO) and Hewlett-Packard (HPQ) that are also "old" tech, yet also pose a lot of risk. Even though those names are respectively down 19% and 46% year to date, it's unclear that they won't just keep dropping -- or just stay bumping along the bottom for a while and become wasted money for you.

Both those names have fallen because they've started to show slow growth and a bloated cost structure that needs addressing. The market also continues to question both of their CEOs. Something tainted, such as these names, can stay tainted for a while.

So, assuming that you're not a few years away from retirement (which probably fits most reading this article), does that mean it's a slam dunk that you should just plunk your chips on a bunch of new tech stocks? It's not as easy as that. We are trading a choppy market. It's been flat for the last few months, but with a lot of volatility. Certain new tech names have been slammed over this period.

In the last three months, for instance, Juniper (JNPR) fell 28%, OpenTable (OPEN) dropped 29%, Riverbed Technology (RVBD) lost 29% and Akamai (AKAM) is off 28%.

However, there's a difference between these former momentum names and the old tech names. In the latter, lower stock prices tend to indicate even lower prices ahead, due to some structural shift in the underlying business that will probably take months to turn around. For the above names, though, lower prices probably indicate that they're oversold at these levels.

There's a remarkable consistency in the above-mentioned stock returns for the last three months. When I see that, I see that the whole "momo" tech sector has been thrown out with the bathwater.

It would be a risky call to go long these out-of-favor names. However, it's probably the right thing to do from now through the end of the year.

Still, other new tech stocks that may have been punished in the last three months could warrant more caution. Dangdang (DANG), which is an e-commerce retailer in China that I've previously shorted, is down 32% for the last three months. Renren (RENN) is a Facebook clone in China, and it's lost 14% over the same period. Both are names that I believe have underlying operational weakness. Even though their stocks are off, I wouldn't want to jump back in.

I expect the current choppy markets to continue, but certain old and new stocks will do if you drill down company by company.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Jackson was long MSFT.

TAGS: Investing | Global Equity | Technology | China | Markets

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