Share prices of technology, media and telecom stocks have not yet stabilised and expectations are th...
Share prices of technology, media and telecom stocks have not yet stabilised and expectations are that volatility will continue throughout the summer.
The share prices of smaller company tech stocks, which headed south in light of the global correction in March and April have still further to go before stability is restored, says Peter Webb the manager of Eaglet Investment Trust. Software company Baltimore was once regarded as a small company and then rose into the FTSE 100 earlier this year but Webb points out that its share price is still volatile a month after the sharp fall in technology stocks.
During the coming months he expects further falls in share prices producing some good investment opportunities within an overall market moving sideways. He says: "Institutional investors are still shell shocked after the dramatic fall in tech share prices. Many still need to refocus and turnover their portfolios, which are then likely to favour secure blue chip stocks with only a small exposure to small caps."
He believes the continued sell off of small cap tech stocks will provide a buying opportunity for Eaglet. The prices of IPOs coming to market have also been affected by the continued downturn, according to Webb. He says: "A few weeks ago, £5m would have bought you a 20% stake in company now it buys a 50% stake."
As a result of the increasing amount of value opportunities among growth stocks, Eaglet is relatively cash heavy. The portfolio has around £25m of liquid assets either in the form of cash or bids on the table for some of the trust's existing holdings.
One sector which Eaglet favours is electronics, which has experienced negative market sentiment due to its links with technology companies, according to Webb. The portfolio has exposure to Deltron Electronics which last week issued its interim results with profits increasing from £0.2m in 1999 to £1.7m. Webb says: "The company is undervalued with a share price of 174p. Williams de Broe believes the true share price is 314p."
The boom and then downturn in tech stocks means managers need to reassess the prospective earnings growth of companies, according to Brian Watson, manager of smaller company portfolios at Framlington. Watson says: "The consensus view of earnings growth last year was upward of 20%. The expected range is now between 12.5% and 16%."
In this current environment Watson is not afraid of investing in tech stocks having recently bought exposure in First Technology. However, he also believes there are other ways of playing the new economy angle. One of his favoured stocks is Shanks Group, a waste management business. Watson says: "The new economy angle can be played across all industries and it is not just about a company's use of, or exposure to, technology. We are much more environmentally conscious and proper disposal of hazardous waste is essential."
On the financial fundamentals of the company Watson expects it to produce earnings growth of between 13-14%. He adds its current share price has been underpinned by the sale of Hanson's own waste disposal business at a good price. Watson is also bullish on media companies, such as Scottish Radio and Great Western Radio.