Entire Tech Sector Appears Poised for a Rally in 2011

|
Includes: AKAM, APKT, ARMH, CIEN, CTXS, ENTR, MIPS, RVBD, VMW
by: Investment U

By Matthew Carr

Over the past year, we’ve heard a lot about precious metals and other commodities. We’ve heard a lot about healthcare, financials and automakers. Heck, even the rare earth area has received some press. But one sector has quietly lurked in the shadows. And because it’s not getting as much attention as it should, few people are talking about the momentum that’s building.

I’m talking about technology. The tech sector is booming right now. But the boom, in our opinion, has only just begun…

The Top Tech Sector All-Stars

Take chipmakers and semiconductor companies like ARM Holdings (ARMH), Entropic (ENTR) and MIPS, for example.

You can find their products in everything from iPhones to DVD players, GPS systems and your car. And with the number of processors used in our daily lives expanding exponentially, the tech sector is expected to enjoy a 7% sales boost in 2011.

And you can see more evidence of this in the huge run-ups we’re seeing in tech right now. Just a few examples of the top performers from the past 12 months…

  • Acme Packet (Nasdaq: APKT) – up 444%.
  • MIPS Technologies (Nasdaq: MIPS) – up 288%.
  • Entropic Communications (Nasdaq: ENTR) – up 319%.
  • ARM Holdings (Nasdaq: ARMH) – up 156%.
  • VMware, Inc. (NYSE: VMW) – up 122%.
  • CIENA Corporation (Nasdaq: CIEN) - up 126%.
  • Akamai Technologies (Nasdaq: AKAM) - up 88%.
  • Citrix Systems (Nasdaq: CTXS) - up 62%.
  • And Riverbed Technology (Nasdaq: RVBD) has jumped 224% higher.

Clearly, the sector has generated some sizable gains lately.

But if you’re wondering whether you’ve missed the boat, don’t worry… because the answer is “no.”

How the Tech Sector Has Put the Recession in the Rear-View Mirror

Right now, there’s no sector more attractive than technology.

Having been hobbled in 2009, as the recession knocked the legs out from under corporate spending, the technology sector enjoyed a rebound in 2010, in tandem with the improving economic picture.

And that’s reflected in the performance of the tech-heavy Nasdaq. The index is up over 17% since January 4, 2010, outpacing both the Dow Jones Industrial Average and the S&P 500. Yet it’s still only about half of what it was at its peak in 2000, and poised for a major breakout in 2011.

One of the major driving forces for this is cold, hard cash.

As America Flashes the Cash, These Areas Are Set to Receive It

After years of belt-tightening, U.S. corporations are now sitting on cash reserves of about $2 trillion. In fact, more than 200 S&P 500 companies actually have cash safety nets of $1 billion.

And with “double-dip” recession fears receding, research firms IDC and Gartner say tech spending should increase by about 3% to 6% in 2011. Meanwhile, Forrester Research predicts a 7% jump, to about $1.7 trillion.

So who’s going to get this money?

  • Information technology services companies will take a big chunk, snagging $820 billion globally, according to Gartner, Inc.
  • The computer hardware area will receive about $390 billion.
  • Enterprise software spending will top $253 billion, putting it firmly on track to become a $300 billion market by 2014.

Not only are major corporations pumping more money into technology, the downturn sparked a series of regulatory measures – especially in the financial industry – that will require technological solutions.

Not to mention the impact of new healthcare reform laws. Billions of dollars will be up for grabs in the medical records market. And the companies I listed above are well positioned to take advantage of these trends.

But the entire tech sector appears poised for a rally in 2011.

These trends helped trigger the technology rebound in 2010. And in 2011, we’ll see broader mainstream consumption. That’s where we’ll see the real money being made – which will truly ignite the sector.

Disclosure: Investment U expressly forbids its writers from having a financial interest in any security they recommend to our subscribers. All employees and agents of Investment U (and affiliated companies) must wait 24 hours after an initial trade recommendation is published on online - or 72 hours after a direct mail publication is sent - before acting on that recommendation.