3 Reasons Tech Stocks Are Soaring
After briefly slipping into a bear market on Tuesday, markets have managed to dramatically climb back up. Today, the Nasdaq closed ahead 2.23%. Extreme volatility like this can mean many of your favorite stocks are susceptible to major swings. Today, I'm checking in on three storylines driving outsized gains in the technology sector.
Tech News No. 1: Riding the iPhone to profits
While investors weren't blown away by any new features in the iPhone 4S -- Apple (NAS: AAPL) traded down yesterday and lagged the market today -- the unveiling did bring about large gains in another area: component suppliers. The companies that provide components for the iPhone traded sharply up in the past couple of days. Here are a few of the more notable gainers:
|Cirrus Logic (NAS: CRUS)||Audio Chips||12.2%|
|OmniVision (NAS: OVTI)||Camera Sensor||34.1%|
|TriQuint (NAS: TQNT)||Radio Frequency||17.5%|
Source: Yahoo! Finance.
Why are these companies gaining? The most simple -- and likely -- explanation is that investors are betting that Apple will stick to previous iPhone 4 suppliers since the updated 4S is so similar in terms of hardware design. In OmniVision's case, comments and specs from Apple's iPhone 4S presentation helped fuel speculation it'd maintain its pole position providing camera sensors. Finally, the aggressive price points of iPhone 4 ($99 with a contract) and 3GS (free with contract) models means component suppliers already in those models can continue enjoying recurring revenue as budget minded consumers keep snapping them up.
One word of caution, however: These are companies that are very volatile. Numerous Foolish analysts have advised buying component suppliers -- myself included -- but they're very volatile and usually trade up or down in excess of the market. In spite of huge gain in the past couple of days, these stocks are still only trading back to where they were a couple weeks ago.
Tech News No. 2: Buyout rumors are back!
A couple of buyout rumors drove two tech giants higher today:
- Micro-hoo back on the Horizon? Reuters reported that Microsoft (NAS: MSFT) is considering making another run at Yahoo! (NAS: YHOO) after its 2008 acquisition failed. Yahoo! shares immediately spiked and closed the day up 10%. However, there's another wrinkle to the story: After hours, there are conflicting reports that Microsoft isn't as interested as the Reuters report would lead investors to believe. That's led to an after-hours sell-off of 4%, so Yahoo! could open sharply lower again tomorrow if investors take a dimmer view of the Reuters report.
- Another company soaring today on M&A chatter was BlackBerry maker Research In Motion (NAS: RIMM) . The stock closed the day up over 12%. The surging share price follows rumors that global phone provider Vodafone (NAS: VOD) , which owns 45% of Verizon (NYS: VZ) Wireless, may be mauling a bid. I'll remain skeptical that a carrier would want to reach down and scoop Research In Motion up. BlackBerry models are tremendously popular in regions like England and India, where Vodafone has a strong presence, but it'd be difficult to justify any premium paid based on cost savings.
Tech News No. 3: Better cash management
Finally, after the market closed, Corning (NYS: GLW) announced it'd be raising its dividend 50% and buying back up to $1.5 billion in common stock. Fellow Fool Anand Chokkavelu recently called out the company as the "1 Stock to Buy in October" based in large part on the company's ability to buy its stock back on the cheap and lure in dividend investors. Even after a 6% jump today, Corning still trades at a P/E just under 6, an attractive price for a company that has a dominant market position and a fortress-like balance sheet.
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At the time this article was published Eric Bleeker owns shares of Cirrus Logic. You can follow Eric on Twitter to see all of his technology and market commentary. The Motley Fool owns shares of Research In Motion, Yahoo!, Microsoft, Apple, TriQuint Semiconductor, and Cirrus Logic. Motley Fool newsletter services have recommended buying shares of Corning, Apple, Vodafone Group, Microsoft, and Yahoo!, as well as creating bull call spread positions in Microsoft and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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