The Business Intelligence (BI) Index has outperformed the major stock indexes YTD on a relative basis but lags behind the S&P Software Index (IGV). The BI Index kept pace with the NASDAQ Wednesday. Click to enlarge:
The YTD performance of the individual company stocks comprising the index is listed on the chart below. Click to enlarge:
Sun (JAVA) is the top gainer YTD, but with no substantial changes to its business model. It appears that after being the poorest performer in the index last year, its rise may just be an oversold bounce. There are several cautionary factors to consider before jumping on this bandwagon:
- Hardware budgets are one of the first targets in IT budgets to be slashed.
- The impact of open-source products on a company of Sun's size has not yet proven.
- There is no significant services group to smooth out performance.
The bottom dwellers YTD are the two analysts firms: Gartner (IT) and Forrester (FORR). These firms actually had slight gains in 2008 while most of the companies they review were experiencing bear market returns. Just recently, investors have become concerned that services and consulting at these firms are also likely to be impacted by the reduction in IT spending: Although we may feel their advice is invaluable, their services are a nice-to-have rather than essential.
The financial industry, by some estimates, accounted for 20% of IT spending prior to this bear market and whatever remains of this industry after the recovery is likely to be more frugal with the depleted resources it has to spend.
Another bottom dweller is Hewlett Packard (HPQ). HPQ and its CEO Mark Hurd were Wall Street darlings until recently. Selective acquistions, cost-cutting and missteps by competitors have fueled handsome revenue and income growth during his tenure. But the weight of the recession and its impact on IT spending, particularly in hardware (servers, PCs and storage), has finally caught up with the stock. It's an excellent company with top management, but the depth and duration of the recession will determine where it goes from here.
The software companies in the BI index, although many being in the middle of the perfromance rankings YTD, are likely to fare better and rebound quicker than other industries and even other high tech firms.