Select Page

Citywire Research, citing J.P. Scandalios, Franklin Equity Group’s vice president and manager of the Franklin Technology fund. Unlike several investors, Scandalios believes the whole sector looks attractive not just from a growth but also from a valuation point of view. ‘The combination of strong growth prospects and reasonable valuations has given information technology the lowest price/earnings to growth ratio (PEG) among all the S&P 500 Index sectors as at March 31,’ he said. ‘The lower the PEG ratio, typically the more a sector may be undervalued given its earnings performance,’ he added. Due to this environment, Scandalios noticed several IT firms are flush with cash, and, as companies are maturing in the space, they are expanding the ways they return value to shareholders. ‘Buybacks and the initiation or growth of dividends have been common, but increasingly M&A activity is seen as a strong option for technology firms looking to increase their value,’ he said. Acquiring smaller firms with cutting-edge technology, in his opinion, can be a cost-effective way for larger technology firms to expand their capabilities into new areas and potentially increase their earnings power going forward. Old and new technology In his fund, Scandalios has recently looked into ‘new’ sectors that are offering interesting opportunities and, potentially, earnings and cash flow growth, according to Citywire. ‘Lately, we have been looking at new potential opportunities linked to network security, wireless data growth, SSDs (solid-state hard drives) in servers and notebooks, the proliferation of e-commerce, the “Internet of Things,” LED light bulbs, the adoption of SaaS (software-as-a-service) products, and 3D printing,’ he said. He added a recent hot topic in the sector is transaction security. ‘We are also looking at firms that can benefit from the shift away from old magnetic strip credit cards to NFC (near field communications) and chip-and-pin based cards as well as the upgrade to payment terminals that use these technologies.’]]>