Technology sector
>> welcome back. let’s focus on technology. everybody’s favorite topic. the argument that gary was making when we left is that he’s not seing from the people that he’s polled necessarily a return to capital spending. you can’t argue 1 basic fact about technology is―argue one basic fact about technology is that it does accelerate. you can’t look at a period over 20 years where we haven’t seen innovation. do you believe that alone, that sort of trend or psychology will generate buying?
>> there is a second issue. one is, is this going to provide leadership for the economy? the spending on technology. the other thing that we learned about technology is something that is always true of new technology is that is two things, one is that it kills itself with excess capacity because it is so attractive, it gets all of this money in and you build four transcontinental railroads in the late 1800’s, you add motor vehicle companies, we’re down to two domestics, it is the same thing. new technology is superseded by newer technology.
>> yeah, but somebody’s going to benefit. jessica, who will benefit? who is in technology to last?
>> i think that the highest spending will be in outsourcing, storage.
>> data is constantly created.
>> we have so many regulations that companies have to focus on. they have to have the capacity to invest in―that’s why we like e.m.c., for instance.
>> i’ll agree with gary on this. if you look at e.m.c., years ago they could charge more per megabite of storage than now than they can now?
>> i think that in hardware, but i think less so in software and services, everyone is looking to services now --
>> the services technology or are they mundane users of technology? that’s a big difference, isn’t it?
>> i don’t know if it is that high-tech, but they’re helping to run the process of somebody else’s business many
>> would you put a firm that facilitates offshoring to india, would you call that a tech company?
>> yes, we would include that in technology. but i agree with you―data centers are not―there is nothing particularly exciting about that, but i think that there is growth there and opportunity there.
>> really i’m trying to see how you define this.
>> you talk about the differences, the services company is servicing hardware sold by another company. you’re talking about companies offshore that are employed --
>> this is a―this is an area an area that i think is probably attractive and i imagine you do too. this is a common thing unless it is cut off by protectionist legislation. but maybe this is just to say who cares, but when you talk about technology or defining it for anybody who happens to be growing at the time or is it some kind of definition where you have to be developing some new―some new hardware, software?
>> i think that large cap, most of them are big companies selling, you know, dell, intel, e.m.c., i.b.m. so they’re not necessarily coming up with the latest, greatest new innovation. but when i think when that comes out, they buy it or develop it as well.
>> you’re more on the value side―i mean, can you find value in technology?
>> it’s hard. i would love to own more of these companies. because i do think that in many cases earnings will grow at a handsome pace over the course of the next couple of years many however, the market has already sniffed those earnings explosions out and we would have to pay a multiple that’s a little outside of our comfort range.
>> is microsoft a value stock now?
>> i think that it is. if you strip away $5 a share in cash, you’ve got a stock that is treading around $20 a share -- trading around $20 a share, with earnings power today of well over $1 a share, how great that is over the next five years is hard to find. they have businesses that they’ve been spending money quietly on that one of them could hit. i don’t know that any of them will hit. but one could and all of a sudden you could see that $1, $1.15 in earnings turn into $1.30 --
>> you define microsoft as a value company leaning into growth or is it growth leaning into value?
>> i think that it is a value stock. i don’t think that there is a lot of inspiring growth in the short run. i am look down the road and seeing the opportunity for earnings growth and i’m willing to take that opportunity today and wait. i don’t think that my down side is terribly great and that’s one of the tricks of value investing is lilting your down side.
>> you know what i want to do after the break is talk about technology only from the perspective of why it always seems to lead the market . thank you for joining us on this special edition of bloomberg tv. we’ll talk about everything from oil, currencies, commodities, what to buy and what to stay away from. all of that and much more.
