Tech stocks rising

If you were in the stock market in the late 1990s, you felt the thrill of the technology boom and probably still have the scars from the sector’s collapse. But tech funds and stocks are becoming attractive once again to investing contrarians.

Last year wasn’t particularly inspiring for tech funds, as they returned just 5.52 percent, barely besting the 4.9 percent gain of the Standard & Poor’s 500. Longer-term data betrays the legacy of the bubble: Tech funds have lost 9.22 percent over the last five years and are up just 6.36 percent over the last decade.

But the funds have crept back since 2002, with a three-year gain of 19.73 percent, and a closer look at the sector shows better opportunities may be on the horizon.

“Tech has burned a lot of people,” said Karen Dolan, an analyst at fund tracker Morningstar Inc. “It tends to be a place where people remember the way up, and the way down. But what we’re seeing now is that on the stock level, there are good values in the big blue chip companies.”

Drooping shares of big stocks are partly to blame for the sector’s lackluster performance over the last year. But they’ve also given fund managers – hoping for a long-anticipated uptick in corporate technology spending – a chance to snap up solid names at bargain prices, including computer makers Dell Inc. and International Business Machines Corp., chipmaker Intel Corp., and software provider Oracle Corp.

There have been a fair number of success stories, as well, some flashier than others. Google Inc., a stock that didn’t exist two years ago, is now one of the most widely held issues. The 99 tech funds in Morningstar’s database have, on average, about 2.47 percent of their holdings in Google, and it is among the top five stocks of many portfolios. Apple Computer Inc. has also been a huge winner, as has flash memory maker SanDisk Corp. and Corning Inc., which has enjoyed tremendous profits as one of the leading makers of the super-thin glass used in flat panel TV screens.

One thing worth noting is how managers evaluate tech stocks now, compared with the way they did during the go-go years. The biggest difference? Fundamentals matter. And while the growth of the sector may be lower than it was in the late 1990s, it’s also more mature, and potentially more durable and widespread, said James Morrow, manager of the Fidelity Select Technology fund.

“The tech market was a speculators’ market back then. It was a difficult environment to invest in,” Morrow said. “Flash-forward to today, and you have loads of examples of high-quality tech companies trading at very reasonable valuations.”

Now, instead of “counting eyeballs” – one way Internet companies were valued during the boom – managers focus on factors such as cash flow, the health of operations and whether a company’s business model is sustainable, said Vivienne Hsu, a senior portfolio manager with the no-load Schwab Technology fund (SWTFX), offered by Charles Schwab Investment Management.