Investing in tech stocks can be sexy or staid
Sheryl Sandberg, Chief Operating Officer of Facebook, speaks at a Facebook event for marketing professionals, on Feb. 29, 2012 in New York. Investors are often attracted to sexy, high-profile tech stocks, but not all of them are going to reach the towering heights of iPhone maker Apple or search engine giant Google, experts say. THE CANADIAN PRESS/AP, Mark Lennihan
MONTREAL - Investors are often attracted to sexy, high-profile tech stocks, but not all of them are going to reach the towering heights of iPhone maker Apple or search engine giant Google, experts say.
Facebook's coming public stock offering has generated so much hype that it's expected to be difficult for average investors to initially buy shares and few, if any, are expected to be available in Canada.
Professional networking site LinkedIn, online coupon site Groupon, online review site Yelp, or Zynga — the largest maker of games for Facebook — are known through their popularity on the Internet and now are publicly traded companies whose stocks have all fluctuated.
"For everyone that makes it, there are many that don't," said ScotiaMcLeod wealth adviser Chris Kuflik.
"People really need to do their due diligence," said Kuflik. "There's always lots of interesting things happening in tech outside Facebook, Groupon or LinkedIn."
Economist Mike Moffatt of Western University said while Apple and Google are well-established, profitable companies, it's not clear if other high-profile tech companies, including Facebook, are going to generate revenues in the long run to pay for their expenses.
Shares in Apple (NASDAQ:AAPL), the world's most valuable company, was trading at just more than US$606 per share per share. Google (NASDAQ:GOOG) was trading at US$636.97 per share.
Depending on market reaction to the initial public offering, California-based Facebook could be valued at US$100 billion or more with an estimated price per share of between $30 to $35.
"There's a lot of exuberance out there and you could call it irrational," Moffatt said of Facebook.
"Some of these valuations leave me scratching my head," said Moffatt, who teaches at the Richard Ivey School of Business in London, Ont.
"A few of these, I think, are certainly going to be the next Pets.com and it's just sort of figuring out which one."
Pets.com is an oft-cited example of the dot.com bust of more than a decade ago. It was a publicly traded company that offered free online shipping of pet supplies and accessories that folded in 2000 after being unable to turn a profit.
Internet marketing expert John Pliniussen said he supports investing in social media-based companies, adding it takes investors to make these companies grow.
"I believe this is simply a new way of doing business," said Pliniussen, an associate professor at Queen's University in Kingston, Ont.
Social media has changed people's habits and investing in these kinds of companies is here to stay, he said.
"I can't think of anyone who's serious about their career who's not on LinkedIn. I can't think of anyone who is serious about a relationship who doesn't try online dating."
Moffatt said he would encourage investors to look at tech companies that "don't do particularly sexy things" that have growth potential.
"Those are the ones I would be looking at. They're naturally high risk, but you can diversify."
Is it now too expensive to buy shares in Apple or Google?
"The question is: Can they continue with those earnings at the same rate they're growing now? From a valuation perspective the stock is not expensive but should they stumble, it could cause big problems," Kuflik said.
Pliniussen offers this: "Do you spend $60,000, if you have that, to get 1,000 shares of Apple or do you get 60,000 shares of a dollar stock and hope that it goes up 20 cents versus how much will Apple go up?"
What about BlackBerry maker Research In Motion (TSX:RIM), whose stock was almost $140 per share in 2008 and was trading at just under $14?
"The company has stumbled in the past and a lot is riding on their new operating system. If that's successful, it could be a great investment. If not, they might continue to stumble," Kuflik said.
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