Money Morning Article of the Week
by Michael Robinson, Money Morning
The year is nearly half over, and the mainstream media continues to obsess over a whipsaw stock market that's been cutting highflyers down to size.
The sullen outlook has lots of retail investors dumping tech stocks and running for the "safety" of the sidelines.
That's a mistake I'm urging you to avoid.
You see, I believe that stocks - and especially tech stocks - are poised to do very well in the last half of 2014. And that means the biggest losers will be the folks who cash out now.
This isn't just a wild guess on my part.
In particular, there are four reasons why tech stocks - and biotech stocks in particular - will do well in the final six months of the year. So today I'm going to show you why - before the midpoint hits - this is your best chance to position your portfolio... and cash in on that run.
My analysis shows that four specific catalysts will keep tech stocks moving for the rest of this year.
So let's jump right in...
Tech Stocks Catalyst No. 1: The Mobile Wave
The Semiconductor Industry Association (SIA) trade group just reported that worldwide microchip sales reached $78.47 billion during the first quarter - the industry's highest-ever result for the first three months of a year. Sales for March were up 16.1% in the Americas, and 11.4% globally, on a year-over-year basis.
SEMI, the trade group representing the producers of chip-manufacturing gear, says equipment-makers signed $1.28 billion in orders in March, for a book-to-bill ratio of 1.06. That represents a year-over-year increase of 16.1%.
Because wireless devices are growing in sophistication and are using more and more chips in each unit, mobile products like smartphones, tablets, and "phablets" will be a big driver here. And it's a multiyear driver: Sales of mobile/wireless products will power forward for at least the next three years, says market forecaster IDC.
In fact, in a recent report, IDC estimated that global sales of smartphones hit 1 billion units last year. And it expects sales to hit 1.68 billion by the end of 2017, an increase of nearly 70%.
The continued growth of the mobile wave will help keep semiconductor tech stocks thriving. As for the rest of the tech sector...
Tech Stocks Catalyst No. 2: Merger Mania
For the rest of 2014, I believe mergers and acquisitions (M&A) also will help drive tech stocks higher. Silicon Valley firms are sitting on mountains of cash, meaning they can afford to snap up smaller firms possessing promising technology.
So-called "bolt-on" deals allow the leaders to add product lines or markets while saving money by cutting redundant workers and offices.
According to a recent Moody's Investors Service report, U.S. companies outside of finance were holding $1.64 trillion in cash at the end of 2013. That's up 12% from 2012, the previous record year.
And that's why "Big Tech" is leading the deal wave. In recent weeks, for instance, Microsoft completed its acquisition of Nokia Corp.'s mobile manufacturing and services unit - a deal it views as key to its future. Apple, which bought nearly two dozen firms last year, just grabbed a startup that can extend smartphone battery life. And Google, which has been "collecting" robotics firms, just picked up a leading maker of drones.
I expect this kind of deal making to continue for the rest of this year.
Tech Stocks Catalyst No. 3: Biotech Blockbusters
The urge to play "Let's Make a Deal" isn't limited to Big Tech. Big Pharma and biotech outfits will also be playing the M&A game in the year's final six months. And that could help the biotech sector sort itself out after a bear market sell-off in the first part of 2014.
The recent retreat of biotech stocks from a blistering two-year rally really wasn't about fundamentals.
It was about congressional meddling.
In March, three congressmen told Gilead Sciences Inc. (Nasdaq: GILD) Chief Executive Officer John C. Martin in a letter that the company's new hepatitis C drug Sovaldi was "extraordinarily" expensive.
With a sticker price of $84,000 for a full regimen, Sovaldi may seem expensive at first blush. But compare that to the $250,000 cost of a liver transplant, and it's clear the drug is actually pretty cost-effective.
Despite this congressional criticism, Sovaldi racked up a stunning $2.3 billion in first-quarter sales for Gilead.
But the letter from Congress raised the specter of Washington interference and increased regulation. And that was enough to help shove biotech stocks off the cliff.
Tech Stocks Catalyst No. 4: The Graying of America
The biggest reason for my optimistic view of tech is a surprisingly secular catalyst.
I mean, just think about all those 401(k) accounts being opened and added to each day.
In short, I'm talking about the fact that America keeps getting older.
That means that rivers of cash, most of it retirement money, continues to flow into the stock market, including dozens of top tech stocks.
Just look at the data compiled by Aon Hewitt, a management consultancy that tracks retirement data for 1.3 million people at large corporations. In a recent report, Aon Hewitt found that the portion of new retirement money being invested in stocks has risen to 67%.
Let's put that figure in perspective. In February 2009, just about a month before the bull market began, only 48% of 401(k)s were devoted to stocks. That means long-term stock investing has increased by about 40% in just five years.
And at the end of 2013, the most recent data available, there was at least $5.9 trillion in 401(k) accounts, according to the Investment Company Institute. The trade group says IRA accounts represent an additional $6.5 trillion.
In other words, Americans already have nearly $12.5 trillion socked away in long-term accounts - most of it devoted to stocks.
The steady growth in retirement saving means more and more money is moving into stocks every single day. And that's one reason why - despite sluggish economic growth - the market keeps hitting record highs.
Taken together, these four catalysts should fuel a hefty rebound in U.S.-listed tech stocks in the second half of this year.
Editor's Note: Thanks to innovative moves from CEO Elon Musk, Tesla (Nasdaq: TSLA) stock has gained a whopping 238% in the past year - and the company is not slowing down.
Now Tesla is engaged in a highly sensitive venture called BlueStar that could disrupt $737 billion of the U.S. economy and impact 98% of the population.
Few details concerning BlueStar have made their way into the press. However, a recent investigation uncovered some shocking revelations.