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Quarter-End Insights

3 Tech Picks for the Patient

With volatility creeping back into the market and most technology and telecom names trading at or above fair value, we fall back on our moat methodology

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  • In aggregate, the technology sector is slightly overvalued, and global telecom is fairly valued. A few areas present long-term value, notably in international telecom.
  • The analytics market is growing, but regardless of its speed, size, or location, data is useless until it can drive actionable results. 
  • Revenue for Internet companies with economic moats backed by unique customer data is likely to outpace the digital advertising market, but investors should demand a margin of safety.
  • Mergers, acquisitions, and yield-seeking continue to push U.S. telecom stocks above fair value, in our view, but opportunities are still plentiful in Europe and Asia.

We have considered the technology sector to be either fairly valued or slightly overvalued for the better part of the past 18 months, whereas the communication-services sector has, until only recently, been considered undervalued. However, within each subsector, there are pockets of value for patient investors. In particular, we believe that the international telecom and domestic cell tower industries offer more appealing valuations. In the table below, we highlight a few of our top picks, including two from the telecom sector.

Peter Wahlstrom does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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