Techs' conservative approach helps stocks shine

ByABC News
July 1, 2009, 3:36 AM

— -- Tech stocks are finally working to redeem themselves from the 2000 tech-stock bubble.

While the broad market stumbles out of its credit-induced stupor that started in 2007, tech stocks ironically are one of the areas of strength by being fiscally sound. "Tech companies took a conservative posture," says Ryan Jacob of Jacob Internet fund. "Tech has been a place you could see some growth without as much risk."

As a result, tech stocks are:

Beating the other benchmarks by a mile. The tech-heavy Nasdaq composite is up 16.4% this year, trouncing the 3.8% drop by the Dow Jones industrials and 1.8% gain of the Standard & Poor's 500. The Nasdaq's 45% rise from the March 9 bottom and 20% gain during the second quarter also outshine the S&P and Dow during the same period.

Topping the sectors. The tech sector is up 28.8% over the past six months through Monday's close, says Capital IQ. Tech's rise this year tops the runner-up, materials, and its 18.6% gain.

Finding leadership within leadership. Internet stocks are doing even better than tech at large. The USA TODAY Internet 50 is up 27.2% this year and the e-Consumer 25 subindex 34.2%.

Investors have been keen on tech stocks, especially during the worst of the credit crunch, largely because the companies have been reluctant to use debt. "These businesses produce so much free cash flow, there's no reason to go out and borrow," says Uri Landesman, strategist at ING Investment Management.

Additionally, the tech industry is generally an early beneficiary of a better economy, says S&P's Sam Stovall. Other sectors that tend to rise during the early stages of an economic recovery, financials and consumer discretionary, are loaded with worries about the health of the financial system and consumer, he says.