Automatic Data Processing, Inc (ADP) is the premier HR business process outsourcing ((BPO)) agent responsible for thousands of payroll transactions worldwide. ADP is also active in providing financial information systems to car, motorcycle, marine, and recreational vehicle dealers located across all major continents. The company offers great solutions for businesses that are seeking to realize efficiencies by cutting costs of non-revenue generating units. Heavily tied to the employment rate, ADP obviously makes more fees as it disburses more payroll checks and sells more of its information systems as durable good orders pick up.

ADP is very dependent on a healthy economy, but it has managed to weather the downturn extremely well, as businesses seek operational efficiencies during the current capital crunch. The need for lean operations only helps ADP since its HR outsourcing functions includes more than just payroll, but the crucial human capital systems that every company uses to train, evaluate, and award its talent. This outsourcing can significantly cut costs, directly affecting the bottom-line of ADP’s customers. It is not wise to be bullish on ADP until later this year as management recently cut guidance during the first week of April. Although ADP should meet guidance, it will most likely trade sideways if not down for the majority of 2009. A Q4 entry is best, as most believe the economy will rebound mid 2010. This means the stock market should find itself in the midst of a bull market in early 2010, so remember to jump ship before the New Year. Analysts believe that macro conditions have caused ADP to suffer, so a healthy economy will lead to a healthier ADP. So, what is going to happen when the economy turns?

Cloud computing has been the buzz word the last couple years in IT, making many believe it is a fad. The vast majority of the investing population does not understand what cloud computing is, what it can do, and how it is changing the current framework of computing and the large corporate data centers that have become the nerve center of business. I want to shed some light on this computing model and offer some ideas for those looking to invest into this IT hotspot.

What is Cloud Computing?

Junk bonds, also known as high yield debt, issued by those companies in less than sound financial condition, have always accounted for a large portion of the credit pie. During the recent turmoil, debt was hard to sell. Even companies with the prestigious AAA credit ratings from the ratings agencies often paid a substantial amount to shore up their balance sheet. If the healthiest companies found it hard, one could only imagine how hard of a job it was for those seeking to sell their “junk” to shore up their finances. The junk bond market literally came to a halt as the collapse of the nation’s large financial institutions destroyed liquidity for the better part of 2008. However, April 2009 has signaled a better time for debt and especially such high yield. With investors willing to take on such risk, is this a sign of a sustained swing in the capital markets?

Signs of Relief

Online social networking has been the buzz word for the last 5 years with the birth of MySpace and Facebook which were later followed by LinkedIn and Twitter. The Trinity as I call it, Facebook, LinkedIn, and Twitter have ascended to the forefront of talks regarding the future of this business.

Rumors have surfaced over the past month that Twitter was being eyed by the likes of Google (GOOG) and Apple (AAPL). I believe that it is time that I now offer my perspective on the issue as these companies continue to mature at a rapid pace and permeate the lives of people worldwide.

The market is showing signs of relief as the major indices have experienced some great up days despite a lack of positive news regarding our economy. As an investor, you may be wondering what your options are to return to the equity market with as much prudence as possible. The first thing to note is that the IT S&P 500 Component has done extremely well, up 11.80% YTD. A great way to re-enter IT is through the purchase of well constructed ETFs. ETFs are a great way to capture the upside potential of various companies while maintaining diversity within your IT portfolio (or any portfolio). The key to ETF evaluation is to select low cost and well constructed ETFs making it important to conduct due diligence on the major underlying securities of the vehicle. ETFs can be a great short to medium term security to enter during volatile environments to maintain exposure to certain companies. I have been looking at a few technology ETFs and have compiled a list of the best three and provided some analysis regarding their holdings and future outlook.

Powershares Dynamic Software (PSJ)

Microsoft, the largest name in software led by some of the most brilliant minds in business, has found itself in quite a jam lately. Since the start of the millennium, Microsoft (MSFT) has found it increasingly difficult to grow through the credit rich bull market but is showing some signs of hope as the Windows 7 launch nears. However, is this enough for Microsoft? I do not think so, especially with their pile of cash and access to credit. I believe MSFT needs to be evaluating other options, both organic and inorganic, to help jump start its growth.

Microsoft is poised to release Windows 7 in late 2009 or early 2010, essentially placing their success on one product, something I refer to as not “diversifying your future.” This is just like an investment; one cannot bank the success of their company’s hard spent time, capital and efforts on just one major product. Microsoft does have the new Azure, a cloud computing platform, but little has been said about pricing specifics and the total potential it has compared to its open source counterparts. Many of you may be wondering about Office. Unfortunately, this source of revenue will be rendered obsolete as cloud architecture gains steam and it becomes less expensive to own a system loaded with basic productivity and business tools. Deploying software into a recession could be brutal for the future of The House that Gates built, as fewer consumers and corporations are likely to upgrade already well functioning products.

The markets scored a three-day rally as the Dow Jones Industrial Average rose 3.5% to settle well above the 7,000 mark. The S&P and NASDAQ closed up 4.07% and 3.97%, respectively. Crude ended the day up over $4.00 to close at $47.03 a barrel while gold has closed up at $927.50.

The 10 year saw yields shrink to 2.86% as investors snapped up everything from equities to bonds.The markets enjoyed another great day as the banks were up once again: Bank of America (BAC) rose 19% on news that the bank will not need any more government funds, as did Citigroup (C), JPMorgan (JPM) and Wells Fargo. Analysts warn that short-term profitability does not mean anything until writedowns are reported at the end of the first quarter.

The information technology sector is often seen as a recession proof space to park money in during rough times. However, the financial crisis has not been nice to IT either over the past twelve months, noticeable now in 2009 as the big bellwethers are forced to downsize. As 2009 progresses, it is important to start taking calculated risks so as to not be left in the dust.

Cerner (CERN)

Recessions, often seen as an investor’s worse nightmare, should really be viewed as an opportunity. Recessions, as defined by the NBER, require that the nation in question experiences two consecutive quarters of negative GDP growth. It’s no news that America has been in a recession since December 2007, spurred by the rapid deterioration of the capital markets due to the credit crisis. This downturn has left many investors and corporations reeling, preferring to stick to cash instead of investing in retirement funds or operations, respectively.

I believe that such downturns offer opportunities and historically, IT companies flush with cash can expand R&D during these times allowing them to offer better products during a bull cycle. The recession earlier in the decade yielded Google (GOOG) search, improvements in Intel’s (INTC) chip sets, and MySpace’s (NWS) social networks, among many other innovations. The quandary now is what technological innovation will occur during this bear market? Say hello to formal cloud architecture, the engine behind today’s hottest web based applications.

If Samuel Taylor Coleridge were still around today, perhaps as an economist or a banker, he would have probably been caught saying, “Money, money, everywhere, but no one wants to lend.” Yes, this has been the theme ever since the Fed began cutting rates and using alternative methods to thaw out the credit markets. America is literally printing money and handing it out, yet no one is happy with what they have and are refusing to lend. Banks are unwilling to issue credit and investors are scared to buy corporate paper, leaving only the government to step in to facilitate the smooth operations of both the American and global financial system.

The credit crunch has left banks stingy and unwilling to lend, unsure whether to offer credit to populations not only across America but also across the world. Central banks across the world have simultaneously worked to pump billions of dollars into the world financial system to heat up the cold credit conditions.

Yahoo (YHOO), a now jaded internet name, once was known as the best portal offering several services for the emerging internet population back in the mid '90s. It has now fallen off the face of the Earth. Yang’s departure, announced on November 17th, signals the end of an era, and possibly the end of Yahoo as we know it. Anyone following the stock market news this year knows that the future of the search engine has been in limbo since early this year when Yang brushed aside Microsoft’s (MSFT) $30.00 per share. Subsequently, Google (GOOG) ended the search advertisement partnership due to anti-trust issues. This year has been rough for Yahoo, with shares having been south of $10 in November and down over 40% this year. How will this old internet name end up?

A Flaw in Fundamental Leadership

The memory chip makers have been slaughtered throughout 2008, suffering from the lack of demand that is fueling slow sales and poor margins. This observation seems to be paralleling the whole semiconductor industry, which has slowed during a year of economic turmoil. However, this subgroup seems to be worse off than almost any other. The whole group of memory chip makers has been struggling to record profits as end markets are flush with products, driving down chip prices quarter after quarter. Naturally, an indicator of profitability and solid financial health for this sub-sector is the demand for the end products that utilize such components. With the current recession at hand, PC markets are finding it difficult to sell their product. The question now is how will these corporations do in 2009?

Basic Economics

Markets reopened Friday with low volume that continued till close as the Dow Jones Industrial Average was up to 8,515 points, after gaining over 47 points. The Nasdaq added a little over 5 points and closed at 1,530 points, while the S&P 500 added almost 5 points and closed with 872. Markets overseas were mixed, with Japan’s Nikkei up 1.63% and Britain’s FTSE down 0.93% to finish off the trading week.

Markets seemed to shake off poor retail data as Mastercard (MA) reported an overall decline in consumer spending during the holiday season. Consumers in general took a seat this holiday season, cutting back spending despite heavy price cuts. Luxury sales saw a 35% decline YOY, but e-commerce retail outlets saw just a 2% decline from the 2007 holiday season.

Waking up to the markets could make some feel as if the sky is falling and the world around them is plummeting into a deep abyss with no promise of return. Although the immediate future looks glum, there is no need to mope around, chum. Even bear markets such as this one present investors with opportunities. I feel that everyone is so wound up in the present that they fail to look forward beyond this crisis. I will admit the current situation is quite grave, but it is time to wipe away those tears and work to put that excess cash into the market, specifically within a few solid tech plays

Why do I need more cash?

PC makers Hewlett Packard (HPQ) and Dell (DELL) posted earnings last week partially lessening concerns that PC manufacturers will follow their tech counterparts in the spending downturn. Intel’s (INTC) recent remarks did not bode well as revenue guidance was lowered by over $1 billion due to softening demand. It is surprising to see the PC makers coping well in a time when electronic spending is poised to decline as increasing unemployment forces people to save their money for essentials.

Hewlett Packard Impresses

Healthcare, more specifically Pharma is showing an appetite for deal making as four major companies are courting potential acquisitions. This hunger signals a change in the environment as signs of consolidation surface. If we look at this year’s activity, IPOs were at an all time low and the majority of the sectors did not see much M&A activity. The Healthcare sector, most specifically Biotechnology and Pharmaceuticals saw a burst of M&A interest in the past month.

Deal #1: Novartis and Speedel (7/15/08)
Amount: 1.01 Billion Swiss Francs ($980 million)

I do not want to join the bandwagon of market enthusiasts promoting this company, but it is hard to ignore the potential profits it offers investors.

Research in Motion (RIMM), the maker of the famous Blackberry, has a lot going for it right now. Although the macro environment bears down on it, the loyalty it receives is deserved with its innovation. In my opinion, the Blackberry is an industry standard device. It is hard to see a professional these days without one, typing away emails, checking up on schedules, reading the latest headlines, and let's not forget, talking to their families. The all-in-one device offers great computing power, necessary in this information age. Looking into the future, where is Blackberry going to continue growing revenues for RIM?

Tides from last years credit crunch have left investors running to safeguard their portfolio as the global economy weakens and the U.S. economy flirts with the possibility of recession. The healthcare sector is often looked at as a recessionary proof industry, however, the industrial environment is posing its own challenges. I have discussed the FDA delaying approval for many drugs and the trend does not seem to be letting up anytime soon. Paired with regulation, drugs targeting major diseases take some time to develop, further delaying the prospects of revenues. Where do we go as the popular pharma plays face such challenges? Stryker Corporation (SYK) [62.98, 0.00 (0.00%)].

The Business

Stryker Corporation, headquartered in Michigan generates revenues from two major operating segments: Orthopedic Implants and MedSurg Equipment. The company’s presence in medical devices and implants does not necessitate it from standing in the waiting line for FDA approval like the popular healthcare plays. Do not get me wrong, Stryker is answerable to the FDA and has run into some issues with the agency but is positioned better than the popular pharma plays. Between the two segments, Stryker offers a vast array of products to hospitals and medical professionals world wide. The Orthopedic segment is known for its bone growth compounds, major implants: hip, knee, and spine, while the MedSurg Equipment generates revenues from surgical tools and medical equipment. The business is diversified well in the device and implant sub sector and continues to work towards providing quality products and solutions to its customers.

The biggest name in IT these days is Google (GOOG) [477.12, 0.00 (0.00%)], the internet powerhouse that has extended its reach throughout the internet via its powerful search engine and an increasingly noticeable advertising presence. The Mountain View, CA company has surpassed the power of rivals Yahoo! (YHOO) [20.12, 0.00 (0.00%)] and Microsoft (MSFT) [25.50, 0.00 (0.00%)] to claim the throne as search engine king. The two competitors have been locked up in a rough takeover battle until recent and continue to let Google runaway as the industry leader. IT companies seem to be a group that can weather rough waters, the question is whether Google can also join the group as a long term hold.

Industry overview

The online search industry has three main players: Google with over 60% market share, Yahoo at 20%, and Microsoft’s MSN at around 8%. The business has seen a great revolution, going from vanilla search to online hubs for information and also has become the largest source of online advertisements. The introduction of online networking and video sites expanded the potential of advertisement and information available. The latest rush is to monetize the value provided by these two mediums. The ongoing acquisition of DoubleClick should provide a further boost for Google in the realm of advertising as the company is already working to grow revenues from YouTube. The competition is fierce, and Google’s innovative powers have kept it at the top making it difficult for the jaded technology icons.