Technology Stocks Show Some Life

Patrick Lyons of NCM Capital Management still hopes for a tech resurgence

Last year, Patrick Lyons, associate portfolio manager at Durham, North Carolina-based NCM Capital Management Group, had high-flying expectations that the technology sector would soon regain its wings. But it hasn’t happened as fast as he would have liked. The portfolio of five tech-related companies he crafted for BLACKENTERPRISE garnered a 3.61% return over the 52-week period, from Oct. 10, 2003 to Oct. 8, 2004. By contrast, the Dow Jones Industrial Average gained 3.93% and the S&P 500 Index jumped 8.10% over the same period.

Lyons thought business orders from technology and industrial companies would pick up because so many companies had put off their purchases during the recession. But the slower than normal recovery and higher oil prices have hampered the growth of these firms. “The past year was tough on tech stocks because corporations were cautious about spending due to the soft patches in the economy. Higher oil prices caused businesses and consumers to cut back on spending, and demand from China was not as strong as many had forecasted,” says Lyons.

Intel Corp. (Nasdaq: INTC) was hit the hardest by the slow recovery and it was the one selection of Lyons’ that diminished his portfolio results. Stock in the computer chip manufacturer fell 32.13%, dropping from $30.28 to $20.55 — very disappointing for a firm that has more than 80% of the microprocessor market. Lyons explains, “The semiconductor industry is still in a period of overcapacity. Intel and others are still working down inventory levels.” He’s optimistic that Intel will rebound in the coming year.

Computer services and manufacturing company Dell Inc. (Nasdaq: DELL), a global PC maker, only managed flat growth over the last year. Even the company’s expansion into the consumer electronics business couldn’t jump-start sales. Dell eked out a 1.52% gain, going from $35.47 to $36.01. “Dell did well in a difficult environment,” says Lyons.

Nextel Communications Inc. (Nasdaq: NXTL), a provider of digital wireless communications services, performed the way Lyons expected it to. With a balance sheet less hampered by debt, shares of the company grew 15.32% from $21.48 to $24.77. Lyons says it became apparent that competitors’ products “were inferior to Nextel’s, and that helped give the stock a boost.” The company was also able to resolve some problems it had with the FCC for much less than what was originally estimated.

Lyons expected Staples Inc. (Nasdaq: SPLS), the office products, supplies, and services firm, to capitalize on the growth of business spending on technology and other items. While the recovery has been weak, Staples still produced an impressive 16.34% gain, growing its shares from $25.27 to $29.40. Says Lyons, “[Staples] tends to do well as the economy rebounds. GDP growth is expected to be somewhere between 3% and 4% next year.”

And Lyons picked Cendant Corp (NYSE: CD) more to capitalize on the growing economy than to identify it as a tech sector hopeful. Cendant, which offers real estate, hospitality, travel, vehicle, and financial services, grew by 17%, going from $19.24 to $22.51. “I still like Cendant,” says

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