Tech Sector ETFs: Perfect for Investors

By Don Miller, Contributing Writer, Money Morning

Despite the recent selloff, shares of Apple Inc. (NASDAQ: AAPL) have skyrocketed 48% in the first quarter, dwarfing the 12% gain posted by the S&P 500.

Apple's astonishing rise has also helped to underpin the Nasdaq Composite, which gained nearly 19% in the first quarter -- its strongest showing since 1991.  But that's not the only place to experience the "Apple Effect." Many investors who own technology ETFs -- which hold almost 4% of all Apple shares outstanding -- were rewarded with even better returns.

For instance, theVanguard Information Technology ETF (NYSE: VGT) was up 20.85% in the first quarter. Even better, the iShares Dow Jones U.S. Technology Index Fund (NYSE: IYW), was up 21.77%, thanks in part to Apple.  Now the question is: Can Apple's momentum continue to drive technology ETFs higher?

Is Apple Inc. (NASDAQ: AAPL) Too Big?

Apple, the world's largest company with a market cap closing in on $600 billion, has grown so large that the stock accounts for almost 20% of some of the ETFs tracking the technology sector. For example, Apple represents 18.7% of the Select Sector Technology SPDR (NYSE:XLK), which holds about $9.8 billion in assets overall.

Some analysts are warning that tying your fate so heavily to one investment could be extremely hazardous to your financial health. "This astonishing public valuation has had some unexpected effects...chief among them is the risk of overconcentration, as a great many indices and the ETFs that track them are weighted by market cap," said Dave Fry at ETF Digest.

In fact, many investors are concerned that Apple's amazing performance is pushing the whole market up.
According to data compiled by Bloomberg News, the Cupertino, CA-based company has surged 653% since March 9, 2009, accounting for 8% of the S&P's 103% surge.

Humming Along Without Apple Inc.

But while Apple's influence is one of the largest ever by a single stock, the broader market would still be humming right along without it. Fact is, the S&P 500 would have nearly doubled even without Apple. And even if the tech giant's meteoric first quarter rise is excluded, the S&P still would have jumped by 10.4%, its best start since 1998, according to Bloomberg.

"The rally has been much more than Apple," said Howard Ward, a money manager at Gamco Investors Inc. who helps oversee $36 billion, told Bloomberg. "Apple no doubt has added some sparkle to the technology sector, but all market sectors have risen."  Although it's viewed somewhat differently, the surge in tech stocks in 2012 may remind some investors of the dot.com boom, when the technology sector also led the whole market higher. Mobile computing is everywhere. Cloud computing, text messaging and social media dominate the landscape.

But this tech boom isn't being led by the Internet stocks that left baby-boomers holding the bag at the turn of the millennium. After Apple, the top 10 holdings for the four biggest ETFs include household names like Microsoft Inc. (NASDAQ: MSFT), Intel Corp. (NASDAQ: INTC), and International Business Machines Corp. (NYSE: IBM).

All are surging on the strength of new spending by corporations rebounding from the recent financial meltdown. "Tech firms had come out of this recession enjoying double-digit growth in technology investments from corporations...there are still reasons to be confident about longer-term trends favoring tech firms," according to analyst Robert Goldsborough of Morningstar.

Technology ETFs: Perfect for Investors

A large weighting of one stock in an ETF, such as Apple, isn't good or bad, it's just important to know.
Besides giving you an efficient way to get quick, broad exposure to the sector, ETFs are especially suited to the technology market. They are easy to trade and you don't have to pin all your hopes on one stock, even if Apple is a large part of the portfolio.

One thing to think about is whether you want to own Apple itself -- or the entire sector with a dose of Apple. Matthew Hougan, President of ETF Analytics, says investors who are thinking about using ETFs to play the technology boom should ask themselves what they are really buying into. "Is it the technology renaissance? The mobile device boom? Or Apple's specific creativity, brand and ability to execute?" asked Hougan.

If the answer is yes to one of the first two, ETFs are a good way to play it. However, if it's just a yes to the last question, then just buy Apple stock itself, Hougan says. But with or without Apple, technology ETFs are likely headed higher.

Source: http://moneymorning.com/2012/04/17/will-apple-inc-nasdaq-aapl-keep-driving-technology-etfs-higher/

Nokia Gets Hammered as its Smartpone Market Share Hangs in the Balance

By Diane Alter, Contributing Writer, Money Morning

http://moneymorning.com/2012/04/12/tech-stocks-nokia-nyse-nok-getting-squeezed-in-smartphone-market/

Nokia Corp. (NYSE ADR: NOK) shares were hammered Wednesday after the company announced its continued smartphone market struggles would weigh on profits in 2012. Nokia, the world's largest maker of cellphones by volume, warned that mobile phone sales will be weaker than forecast in the first quarter due to strong competition in fast-growing markets. After previously thinking it would break even, Nokia now predicts a 3% loss.

The word of warning highlights the steep challenges the Finnish cellphone maker faces in attempts to bolster its smartphone lineup. Cellphone devices and services account for up to 60% of Nokia's sales. The latest lowered profit forecast is the second in less than a year, and the note of caution sent shares of Nokia plummeting to a 15-year low. Nokia last warned of falling profits in May 2011 due to its weak and diminishing presence in the ever-growing, highly contested smartphone market.

And in the wake of Alcoa's surge in the face of positive profits, this also perhaps tells us something important about the markets in general; namely that profits are going to be the main drivers of stocks. To learn more, visit our flagship site at www.goldavalanche.blogspot.com.

Now Nokia needs to figure out how to compete with the raging popularity of Apple Inc.'s (NASDAQ: AAPL) iPhone, while fending off competition among lower-end smartphone models running Google Inc.'s (NASDAQ: GOOG) Android operating system.

Nokia's Falling Smartphone Market Share

The company blames a number of factors for its gloomy outlook.

Nokia cited "competitive industry dynamics continuing to negatively affect the Smart Devices and Mobile Phone business units; timing; ramp-up; consumer demand related to new products; and the macroeconomic environments," as leading factors that will hurt profits this quarter.

While the iPhone has swept sales in the United States, Android models have become more popular in emerging markets. Nokia's cheaper, low-end phones used to thrive in these regions, but have faced pressure. "The company shipped 12 million Smartphones, below our 16.2 million forecast," R.W. Baird's William Powers told Barron's. "The company cited macroeconomic weakness and tougher competitive dynamics, particularly in India, the Middle East, Africa and China. We would note that the iPhone 4s launched in many of those markets in late Q4 and early Q1, though low-end Android devices appear to be the biggest culprit."

The company also attributes the shortfall to a steep drop off in its Symbian platform, its legacy smartphone operating system currently being phased out. But Symbian users have abandoned the platform in droves. Nokia had hoped the Symbian platform would help carry the company during its transition to Windows Phone. CEO Stephen Elop said the company was attracting some support for its new line of phones based on Microsoft's Windows Phone operating system, including the Lumia 900 that just hit stores in the United States last Sunday. In fact, Nokia became the top-selling Windows Phone in 2011 (albeit there was very little competition in the Windows Phone market).

More than 2 million Lumias were sold in the first quarter, Nokia stated, and added that it has "seen sequential growth in Lumia device activations every month since."While the new Lumia launch was widely embraced, it did not create anywhere near the buzz rival smartphone makers have caused with their new models. But a technical glitch announced recently could kill Lumia 900 sales momentum. Some of the Lumia 900 phones are having trouble connecting to AT&T's data network. The companies acknowledged the problem and are removing defective devices from store shelves. But the damage to the brand will hurt Nokia, which is offering affected customers a $100 credit.

Analysts Neutral on NOK

Following Nokia's earnings warning Wednesday, Baird's Powers reiterated his "Neutral" rating on the stock, as did Nomura Equity Research's Stuart Jeffrey.

"We see a continued risk that Q2 proves weaker than even the new guidance implies," Jeffrey told Barron's. "Moreover, unless new feature phone models are an instant hit, there is a risk that Q3 will see another leg down in earnings." Jeffrey said investors betting on Nokia rebounding on a Windows Phone turnaround could be sorely disappointed. "Faster-than-expected declines in Symbian may just bring forward the bad news and allow any potential Windows Phone-based recovery to have an undiluted impact on company earnings," said Jeffrey.

Nokia outlined in Wednesday's conference call that it plans to expand its range of Lumia headsets and make "tactical pricing actions" to improve sales of its basic cellphones. The cost-cutting measures were not specified nor were the amount of the investments. With some analysts slapping NOK with a "Neutral" rating, and another saying it may take a year to see if the company's turnaround plans are working, investors may do best by saying "no" to Nokia for now.

 "I don't think it's fair to judge Nokia until the end of the year," Pete Cunningham, an analyst at England-based research firm Canalys, told The New York Times. "Then, we'll be able to see whether they make it or not." Nokia is set to release financial results on April 19. NOK shares hit a 52-week low Wednesday of $4.20 on above-average volume, an indication many were hanging up on the stock. NOK closed down 15.7% at $4.24.

This Motion Sensor Maker is Profiting From Andriod Smart Phones

By David Zeiler, Associate Editor, Money Morning

http://moneymorning.com/2012/03/19/growth-in-googles-android-pays-off-for-invensense-inc-nyse-invn/

 

The exploding number of Google Android devices has become a cash machine for microchip maker InvenSense Inc. (NYSE: INVN). InvenSense makes the tiny motion sensors used in 70% of Android phones and 90% of motion-sensing Android tablets. Mobile device makers have enthusiastically adopted Android, an operating system developed by Google Inc. (Nasdaq: GOOG), because Google licenses it for free.

Growth in Android devices is exploding. At the Mobile World Congress in Barcelona last month, Google Senior Vice President for Mobile Andy Rubin announced that 850,000 Android devices are activated every single day, for year-over-year growth of 250%. That kind of growth offers tremendous potential for a company like InvenSense, which only went public last November. With 512 million mobile devices expected to be sold by 2014, the market for InvenSense promises to be huge.

InvenSense: The Best Performing IPO of 2011

These motion-sensor chips, called Micro Electro Mechanical Systems (MEMS), are what enable mobile devices to react to tilting or shaking. Although MEMS technology has existed for decades, it was when InvenSense's motion sensing chips were used in the Nintendo Co. Ltd. (PINK ADR: NTDOY) Wii controller in 2006 that the technology started to go mainstream.

The following year, Apple Inc. (Nasdaq: AAPL) used MEMS technology in the iPhone, which triggered the revolution in mobile computing. Although shut out of Apple products so far -- Swiss company STMicroelectronics N.V. (NYSE ADR: STM) has an exclusive lock on Apple's MEMS business - Sunnyvale, CA-based InvenSense has done very well by concentrating on Android devices.

Profit for the December quarter rose 117% year over year, while revenue increased 52%. It marked the second straight quarter of triple digit EPS growth. Analysts expect the hot streak to continue in the current quarter, with a 133% pop in earnings over last year's results. The strong earnings have helped make InvenSense the best-performing IPO from the class of 2011. Currently trading at about $20, the stock is up 167% from its IPO price of $7.50 and 142% from its open price of $8.25.

Beyond Android: More Upside For InvenSense

Many analysts see still more upside for InvenSense as the MEMS market continues to grow. The company's six-axis combination gyroscope/accelerometer is a smaller and more accurate option for mobile device makers. "They have a competitive advantage there," Srinivasan Sundararajan of Oppenheimer & Co. told Investors Business Daily. "They are six months ahead of competitors like STMicro in terms of their ability to integrate accelerometers as well as gyros into one chip."

But the company's fortunes could really take off if it can secure another major piece of the MEMS market. Possibilities include Amazon.com Inc.'s (Nasdaq: AMZN) Kindle Fire tablet, which currently doesn't use motion sensors, or becoming a secondary supplier to Apple. Possible challenges for InvenSense include its ongoing competition with STMicro, which scored a win last fall when Microsoft Corp. (Nasdaq: MSFT) announced it would use STMicro's sensor fusion solution in the Windows 8 operating system due out later this year.

Investors should also bear in mind that the recent run-up in the stock's price may make it prone to a pullback (and a buying opportunity); at its current price, it exceeds the one-year target price of $17.67. Still, the stock shrugged off a prime opportunity for a pullback last week. A lock-up restriction was waived on the sale of shares held by company officers on March 7. That put 6 million shares on the market the same day the company offered an additional 500,000 shares, yet the stock rose.

Clearly, demand for InvenSense stock is high, and the company's dominance of the rapidly expanding market for Google Android devices should keep it there for the foreseeable future.