In May, investors saw Facebook’s initial public offering fail to hit the giddy heights anticipated and its price drop by the second day of trading. As the month drew to a close, the share price had declined more than 20 percent since its initial offering. Now regulators are scrutinizing the IPO process amidst accusations of unfairness from would-be investors who failed to secure shares during the launch. As many commentators would have it, Facebook was difficult to value given the intangible nature of its product and questions of its relative importance in selling goods and services. This and the Eurozone crisis dominated the headlines. Here are some of the key talking points.
Facebook proved to be a disappointment; however, the experts urged investors to consider the bigger picture. The technology-dominated Nasdaq 100 has bounced back to levels not seen since 2001 – before the tech sector plummeted. Investors are back again looking at both startups and mature companies, hoping to find the next Apple. Of course things are quite different from how they were a decade or so ago. We now have a number of mature public technology companies that are posting stable revenue and profits. No longer posting the highest price to earnings ratio of all sectors, according to Standard & Poor’s 500 index, the technology sector is trading only a little higher than the overall market’s P/E ratio. Those who are contemplating getting back into technology might prefer the more mature companies, while others with an appetite for greater risk may want to identify some upstarts that are making waves.
There are many factors to consider when picking stocks – most importantly, that there are no guarantees. Technology firms often rely on overseas markets for a sizeable amount of their sales. If growth slows in China or the Eurozone fails to find a solid solution to its members’ debt crises, companies dependent on foreign sales will get hurt, too.
If anyone needed a demonstration of how interconnected the world economy truly is, events in Greece – and to a lesser but still serious level in Portugal, Ireland, Italy and Spain– should have proven the point.
The crisis in Greece has caused a major loss in confidence in the Greek banks – a loss felt not only in Greece, but also in the other debt-ridden nations. Cooperation and agreement on monetary policy among European nations continues to be elusive, along with the prospect of fixing the Euro monetary system.
A savvy investor understands that in the short term, U.S. markets might get rattled by the financial troubles in Europe, Greece’s threatened withdrawal from the Eurozone or a possible slowdown in China’s demand for goods and services. Many analysts don’t predict much global growth for the next few months, and some are steering clients to tried and true companies that are showing stable profit margins and dividends. Most of these companies make the majority of their sales in the United States and are less likely to suffer in adverse economic situations.
As always, the commentary above is intended to serve as general discussion. It should not be used as a substitute for professional advice from your tax and investment counselors.