U.S Market :: U.S BOND Value & tech Sector

It’s taken more than a decade for the Nasdaq Composite Index to trade back near the 3,000 level. Now that it has, are tech stocks a buy? If you look at price-to-earnings ratios and earnings-growth estimates for 2012, you could make a strong argument that the answer is yes. Given that U.S. Treasury notes are paying historically low interest rates, and fourth-quarter U.S. economic growth was 3%, stocks look more attractive than bonds right now. That’s not to say you should hit the “buy” button this week, at the top of a four-month rally. Given this run-up (US:COMP), stocks will take a breather, as they always do. If the contagion from a possible Greek default crimps U.S. growth, we could see a genuine correction rather than a simple pullback. But the U.S. economy has good momentum right now, and with earnings season for the technology component of the S&P 500 Index (US:SPX) essentially over, the numbers show that the tech sector offers higher earnings growth for the same price as the index as a whole. In other words, if you believe in stocks right now, you should believe in tech. P/E relatively attractive Let’s start with price-to-earnings ratios. The P/E for the tech sector sits at 13.4 times expected 2012 earnings, roughly in line with the 13.2 P/E for S&P 500 companies overall, according to Zacks Investment Research. The two ratios based on expected earnings for 2013 are equal right now at just under 12, although forecasts that far out are less reliable. For that price, the tech sector is expected to deliver earnings growth of 11.9%, better than the 9.4% expected growth for the entire index of companies, according to Dirk Van Dijk, chief equity strategist for Zacks.com. That bodes well for investors who can be disciplined about buying tech stocks this year. Van Dijk is advising investors to consider big-cap names that have a record of paying healthy dividends and raising them every year. “I like the dividend players in tech,” he said, naming Microsoft Corp. (US:MSFT), Intel Corp. (US:INTC), International Business Machines Inc. (US:IBM), Cisco Systems Inc. (US:CSCO) and CA Inc. (US:CA) (formerly Computer Associates), which just raised its dividend. “You’re looking at a growth and income story” for this group, Van Dijk added. Addressing the broader question of bonds versus stocks, Van Dijk wasn’t ready to sound the death knell for the multiyear rally in U.S. Treasurys. But he thinks a long-term view reveals how attractive stocks are as an asset class. In 2012, the S&P 500 companies are expected to earn more than $100 a share, in aggregate, for the first time ever. After healthy dividend increases by many firms, the S&P 500 has an average earnings yield of 7.5%. At the same time, government bonds have become more of an asset-protection class than an income class, given that average long-term yields are about 2% — roughly the same figure as inflation.