The market has an uncanny way of telling investors what is about to happen long before it occurs. So why then are a majority of portfolios continue to shrink? Is it because we are ignoring the signs or are we instead distracted by short-term events that have absolutely nothing of value?
Sirius XM (NASDAQ:SIRI) was initiated with a buy on Friday by Citigroup analyst Jason Bazinet with a $2.20 price target. This came on the heels of an upgrade to outperform by Zacks which cited similar positives. Yet it appears that the stock has barely moved. Is this evidence of the market ignoring a trend?
In my recent article, I envisioned “the cloud” as one day becoming its own sector. To make this point, I highlighted the series of recent acquisitions that have taken place from the giants within an already expanding sector. These included names such as Oracle (NASDAQ:ORCL), SAP (NYSE:SAP) and IBM (NYSE:IBM). While it is too soon to suggest that consolidation is underway, it is hard to write off these M&A events as mere coincidences. Investors are being told right now where the focus will be (if not in) 2012, certainly in the years beyond. Yet it seems nobody is listening.
Anticipating and Embracing the Shift
It seems as if the market and technical trends as a whole have shifted in what appears to be overnight. This shift started with Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG). I know you’re thinking, doesn’t everything? As frustrating as it is to accept, there has to be a leader and everybody can’t play quarterback – and in the tech sector they’re the ones who call the plays and distribute the ball. Apple is in the early stages if the iCloud’s development, while a recent report suggests that Google’s Gmail has now become a viable alternative to Microsoft (NASDAQ:MSFT) Exchange.
I’m sure that we can also agree that there are firms such as Cisco (NASDAQ:CSCO) and Amazon (NASDAQ:AMZN) that are equally well positioned for the advantages of the cloud. But as we waffle over “who’s in and who’s out,” it is crucial for investors to consider their current portfolio objectives. Whether for growing or merely preserving, it is important to investigate not only the companies that stand to benefit from the shift, but also those that are likely to see declines if they fail to adequately adjust.
In a recent report by IT research firm Gartner, not only did they forecast what “old technology” has become, but in a separate report they offered a clear glimpse of where it is heading – remarkably the recent acquisitions (highlighted above) more than support that theory. The article was quoted as saying the following:
- IT budgets and responsibilities are moving out of the control of IT departments and into the hands of others, thanks to trends such as consumerization and cloud computing, Gartner says in its vision for 2012 and the coming years. That means, to be successful, IT organizations will have to excel at relationship management and be adept at coordinating more widely distributed activities, according to Daryl Plummer, managing vice president and Gartner fellow.
- "As users take more control of the devices they will use, business managers are taking more control of the budgets IT organizations have watched shift over the last few years," Plummer said in a statement. "The IT organization of the future must coordinate those that have the money, those that deliver the services, those that secure the data, and those consumers who demand to set their own pace for use of IT." IT departments need to adapt now or be swept aside, Plummer warned.
Evidence of this shift has already been seen by the declining PC and server market over the past several quarters. Does that mean firms such a Hewlett Packard (NYSE:HPQ) and Dell (NASDAQ:DELL) should be avoided? Not necessarily. But it does present an extra layer of due diligence that each investor much consider – that is to say, there is no money in dying trends, only in the birth of new ones. For example, Google began life as a search engine, but has grown to include email and collaboration software, has have expanded its portfolio to myriad niches. And Google is not alone in its movement toward the cloud and more importantly not resting on its laurels.
The popularity of smart phones and tablets have placed both Google and Apple in advantageous positions, a lot of which has to do with the increased popularity in Facebook, Twitter and LinkedIn (NYSE:LNKD). These devices, which combine various social networking, gaming, scheduling and other business functions, have quickly moved from wants to must-haves and have managed to capture consumer fascination, as we live more active and on-the-go lives. Analysts expect the usage of these devices to continue to explode.
The question then is, what does that mean for the usual suspects, you know the former high fliers such as Microsoft, Cisco, HP and Dell? Sometimes seeing these names fall out of favor can give the impression that the sector as whole is in trouble. But that is not the case, only the trends and consumer interests are changing. They are then challenged to give consumers what they want. That is what top management is paid to do.
For investors, more important than trying to figure out why these shifts occur is embracing the change and understanding what the market does. Investors will also be better served to figure out which companies stand to benefit more so than others – particularly in technology, where the sector as a whole has gone through various shifts this year and the signs have become clear as to where it is heading next.
Disclosure: I am long SIRI, AAPL, CSCO, MSFT, ORCL.