'Tis The Season For Tech Stocks; Or Is It?

by: Stone Fox Capital

General wisdom is that tech stocks bottom out around September and rally into the new year. Typically the quarter ending in December has the strongest sales due to consumer purchases for Christmas and corporations spending budgeted funds by year end that departments risk losing if not spent.

Naturally this makes one expect that tech stocks would hit lows in September prior to the start of Q4 and max out around February right after the Q4 earnings report is released as investors hit a high only to realize that Q1 willl typically see sequential declines. Is that what really happens with individual stocks or even popular technology ETFs?

Turns out that this wisdom hasn't held true over the last 5 years. Maybe the financial crisis has thrown off the normal rhythm of the sector.

Popular ETFs like the SPDR Select Technology Sector (NYSEARCA:XLK), Semiconductor Holders (NYSEARCA:SMH), and Internet Holders (NYSE:HHH) bottomed around mid August this year. In general, it appears that if the tech sector is weak going into September and October than it bottoms at the end of the year. The other alternative has been a bottoming process in June and August other than in 2009 when just about all stocks hit lows in March.

Below are the actual bottom months for the listed ETFs over the last 5 years:

ETF 2007 2008 2009 2010 2011
HHH Dec Nov Mar Jun Aug
SMH Dec Nov Mar Aug Aug
XLK Feb Nov Mar Jun Aug

As noted from the list, the sector has either bottomed towards the end of the year or during summer. Lately it appears that September and October have been transition months either off the bottom or towards new lows.

Going by the theory that the tech sector has already bottomed, below is a list of interesting mid-cap stocks worth checking out:

Cypress Semiconductor (NASDAQ:CY) - operates as a semiconductor company delivering high performance, mixed signal, programmable solutions. Leading provider of touchscreen solutions. Offers a 2.3% dividend yield which is very unusual in the mid-cap tech space. Company reports on the 20th providing the least amount of time before the risk of a earnings miss.

F5 Networks (NASDAQ:FFIV) - provides technology that optimizes the delivery of network-based applications, and the security, performance, and availability of servers, data storage devices, and other network resources. Company reports on October 25, providing a few weeks without even risk.

Jabil Curcuit (NYSE:JBL) - provides electronic manufacturing services and solutions. Reported earnings on the 27th that beat analyst estimates. The stock has a forward PE of roughly 6 and lacks the earnings risk of the other stocks.

Raxspace Hosting (NYSE:RAX) - operates in the hosting and cloud computing industry providing information technology (NYSE:IT) as a service and managing web-based IT systems. Company reports earnings on November 7th, providing limited event risk for now.

Teradyne (NYSE:TER) - provides automatic test equipment products and services worldwide used in wafer level and device package testing. Company reports on the 24th providing a few weeks before event risk creeps into the stock.

Of the stocks highlighted, only CY hit a new low in September. All of the other stocks have held the lows since August. Europe could blow up next week or China could be headed to a hard landing, but if neither happens these five tech stocks will be worth owning. Otherwise, buy them after tech bottoms out in November or December.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.