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S&P Talks Tech
10/28/2005 12:00 am EST
Scott Kessler is head of Information Technology Equity Research for the prestigious Standard & Poor’s organization. Here, the analyst looks at a pair of tech stocks that both earn S&P’s "strong buy" rating and are "positioned to win regardless of the overall economic outlook."
"We are looking for over 3% GDP growth both this year and next. However, I think it is fair to say that there is definitely some uncertainty relative to the economy, which is one of the reasons why in our technology sector recommendations we are neutral in our outlook. Therefore, most of the stocks we are recommending tend to have an underpinning of secular, rather than cyclical, growth.
"Overall, within the tech sector, we are currently emphasizing stocks that we believe are going to achieve higher than average growth regardless of the economic backdrop. If there is a favorable economy, then all the better. These stocks are all strong buys according to S&P, which means we believe they will be among the best performing stocks over the next 12 months.
"Citrix Systems (CTXS NASDAQ) is a leading provider of Web access infrastructure. Now that sounds complicated. But really what they do is develop and sell software that enables folks to access their networks from locations others than their primary office. People are increasing working from places outside their office, such as working from home, or working on the road, or working from a satellite office. More often than not, when people are working away from their desks, they are making use of software to some extent that Citrix develops and sells.
"We think this is a growing market opportunity and we think this stock will be the prime beneficiary of this continuing trend. Meanwhile, t he stock fell significantly in the June-July period when the company announced the acquisition of a private company and investors wondered why they were paying so much for a company that did not have substantial earnings. But over the past couple of months the company has done a much better job of communicating its vision.
"I personally believe that this is a great acquisition, which is going to enhance its capacity to sell and support its existing and new software introductions. It will enable Citrix to provide its services in a faster, more secure, and more efficient way. This acquisition will also provide it with some important research and development based in India. Overall, Citrix is a leader in a growing and exciting market and we think the stock is undervalued.
"EMC (EMC NYSE) is a well-known company that is the leading player in storage hardware. What a lot of people don’t know about this company, however, is that it is a leader in hardware as well as software and services within the storage industry. The company has made a number of acquisitions and as a result, EMC is now one of the few, if not the only company that is able to provide what is referred to as integrated life-cycle management.
"This means that from soup to nuts, if you are a small business or a large enterprise, this company can provide a variety services that meet your needs. I think that’s very important. Demand for storage hardware, software, and services is increasing very dramatically for a number for reasons, including increasing regulations in many industries such as healthcare, financial services, and energy.
"The fact is that more and more companies are now being required to retain a wide variety of different types of information and records. I know for example that at Standard & Poor’s, we literally retain every single e-mail, every instant message, and every stock report that is generated within the company. And it is not just for a short period of time. We need to maintain these records for years, due to mandates by regulators. And we are not an exception. Firms across the US and around the world are increasing being required to do this. We see EMC a prime beneficiary."
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