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In most cases when the stock market is going sideways, or generally lacking any sort of upward momentum, there are a couple of things an investor can do. One is to put away the business section, turn off CNBC and go on vacation — in the hope that when they return, things might look a little more exciting. Another is to look for a sector or group that might be waiting in the wings, ready to burst out and lift the market to new heights.
In the past, one of the sectors that has played this kind of role is commodities, but most analysts feel we are a lot closer to the peak of that particular cycle than we are to the beginning. Another sector that often tends to pull or push the market higher is technology — but does it have what it takes to do it again? The verdict is decidedly mixed. While there are some tech stocks that appear to have "legs" (as the traders like to say), there are others that appear to be turning down rather than up. Even some of the traditional stars appear lacklustre at best.
Take Dell, for example. In the 1950s and 1960s, analysts used to say that "No one ever got fired for buying IBM," but for most of the past decade you could have said the same thing about Dell — or at least the stock anyway. Driven by its mastery of the low-cost, just-in-time inventory model and the ever-cheaper price of most computer components, Dell was able to put the squeeze on Compaq (driving it into the arms of Hewlett-Packard) and to push IBM right out of the PC business altogether.
Over the past year or so, however, Dell has been substantially less impressive, at least from an investment point of view. The shares have lost almost 40 per cent of their value, and while some analysts believe that the computer maker is a "buy" at those levels, just as many others see it as caught between a rock and a hard place: a stronger competitor in HP on the one hand, and a saturated market on the other. Not exactly the kind of picture that would make Dell a natural leader primed to lead tech stocks — and the market as a whole — to higher heights.
Hewlett-Packard, meanwhile, has executed a substantial turnaround under new CEO Mark Hurd over the past year and a half, and the stock has reflected that by climbing as Dell has fallen. But the company still makes the bulk of its money from the old printing and imaging division, where growth is in the single digits, and HP is counting on new and relatively untested markets for its much-promised future growth — including the computer services sector, where IBM is the acknowledged leader. In other words, not really a compelling story.
What about Microsoft? In the past, the software behemoth has helped drive not just its own growth but growth across the entire technology sector, since every new release of Windows or Office tends to spark an "upgrade" cycle that causes companies to load up on new computers and other software. With Windows Vista — the upcoming replacement for Windows XP — just around the corner, it would seem like a pretty good time for one of those upgrade cycles to kick in. But there is some debate about whether it will or not, and whether it will have enough oomph in it to drag the rest of the technology sector up with it.
For one thing, Vista has been repeatedly delayed — at least three times, depending on who is counting — and it has also been stripped of some of the features Microsoft originally touted it as having, for a variety of reasons. Some analysts have said there are few compelling reasons for users to upgrade, since most of the enhancements now seem to consist largely of user-interface or cosmetic improvements. With XP there were a host of networking and multi-user features that made it an attractive upgrade, but Vista doesn't seem to have the same kind of appeal. That might convince some companies an upgrade isn't worth it.
What about a rocket like Canada's own Research In Motion? While the stock has gotten a boost over the past few months on rumours and anticipation about a new BlackBerry model, and many analysts see the company continuing its dominance of the handheld email market, there are others who believe it is overvalued and likely to come under increasing competitive pressure from giants such as Microsoft, Nokia and Motorola. Could it continue to rise? Obviously it could, but it probably won't be enough to drag the entire tech sector along with it.
What about Sony? Still struggling with pricing and competitive issues, despite the success of its PlayStation game console. Cisco? In good shape, but unexciting from a growth perspective. Nortel? Please.
Which brings us to Google. Looking for a tech-sector rebound to pull the rest of the stock market out of its doldrums? Better start praying to Google — which continues to try and find another revenue source apart from search-related advertising, a sector it already dominates. Or you could try putting the paper away, turning off CNBC and taking a holiday. Maybe something will have happened by the time you get back.
Mathew Ingram joined The Globe and Mail's online news team in June of 2000, after spending four years as the Western business columnist, based in Calgary.