Will IT sector lead the future of stocks?

Hello folks!

Hope all are doing well! We are having high infection rate in Texas, so I was mostly indoors during this 4^th of July break. In addition to all the turmoils, the movement in stock market is giving me a hard time to concentrate. Seems like recent upward trend already counted in post pandemic recovery although pandemic is nowhere near to be over. Tesla stock is on fire and $1400 price point seems quite expensive to me. Listening to few expert analysts, a good valuation may be around $800. I guess lot of inflow to that stock is due to fear of missing out. As long as fed is pumping zero interest money in market, I am not expecting much of pull back in this market.

IT sector saw the most rapid recovery from the march dip. Overall, I think work from home is going to be here even pandemic is over. Also, most of large retailer are going to adopt online based business model rather than brick and mortar stores. All these are going to just drive the demand for software and IT infrastructure services. Many software vendors like Microsoft not only saw rapid recovery from march dip, they are now in all time high position.

Personally, I find it bit hard to buy individual stocks of many large IT companies. For example, a single stock of top three companies, Google ($1500), Apple Inc ($383) and Microsoft ($213). So, it’s hard for people with limited monthly investment budget to participate in market. For this reason, I found investing with a well-rounded ETF focused on IT sector works better for me. My favorite ETF is Vanguard Information Technology (VGT) and last price I checked was $280.

The main positive side of this ETF is its diversified portfolio. Currently it has holdings in 334 individual companies involved in software, hardware, semiconductor and consulting services. About 60% of total asset is invested in these ten well known companies:

VGT was first introduced in 2004 (sweet 16!) and it achieved average annual return of almost 12%. I guess it will be hard to find similar high return for so long in any other sector of economy. If I would invest $10,000 back in 2010, I would end up now with about whopping $60,000! Wish I was wise enough back then😊

One down side of this ETF is it high Price to Earning ratio (P/E) of 28. I think this is bit overvalued, however whole stock market especially S & P is also overvalued. Ideally, I like it to be around 20 for this type of sector. But for me, it’s wiser to invest on regular basis rather than waiting for a market pull back sometime in future. There is a saying "staying in market is more important than timing the market!". At the end, dollar cost averaging will make pricing more reasonable over longer time horizon. On up side, VGT has a return on equity of 26% and annual earning growth rate of 18%. I am quite happy with these healthy fundamentals of overall performances of holding companies.

In addition to VGT, I am also investing in few other individual IT sector companies. Usually, I try to focus on companies that are paying 3 to 4% of dividends with solid performance on stock price growth. Hopefully, I will discuss this soon in another post.

Have a great day all!

Disclaimer: This article shows my personal opinion and it’s for entertainment purpose only. This is no way professional financial advice. You may seek professional advice or conduct own research before investing. This site uses affiliated links and cookies. Please read the disclaimer & Privacy section for details.