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Tech Values Not Found in Social Setting

Rick Summer, CFA, CPA

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Rick Summer: As we are getting close to wrapping up the first quarter, we are looking at the technology sector, and there are a couple of key themes that we are really pointing to. I think one is really risk avoidance. There are a couple of pockets that we are pointing to for overvaluation. 

I would say one is social Internet. So looking at social Internet, names like Facebook and Twitter are very overextended, quality companies. Facebook is a wide-moat name; Twitter has a narrow moat. But [these are companies] that we think investors should avoid and really look to Google, which is a little bit more attractive. It's closer to fair value. It's a little bit rich but at least much closer to fair value for that wide-moat name.

Two, we are looking at companies that are really high-growth versus old-line technology companies. Name likes Tableau and names like Click are companies that are really coalescing around something called big data and growing at these rapid double-digit rates versus companies like Oracle and IBM.

Click and Tableau are companies that are very richly priced, we think, relative to where their fair values are today. Whereas companies like IBM and Oracle are actually trading below their fair values because they have that ability to hold on to their customers and milk out revenues over very long periods of time.

So we really encourage investors as they look that sometimes it is not really just chasing growth but be very sensitive to quality of the company and the valuation.