U.S. Markets open in 1 hr 28 mins

Old tech value names trump new tech growth

Kevin Chupka
Executive Producer/Writer

Looking for a well valued sector to plow some money into? You may be surprised by David Lefkowitz of UBS and his call to take a look at the names in big tech.

“If you look at the technology sector in general,” he posits, “valuations are exactly in line with the market. Usually the sector trades at a 20% premium relative to the market. So from that perspective the stocks are cheap.”

Related: Facebook soars as Zuckerberg’s cash-machine kicks into gear

It’s not just valuations though. Lefkowitz reminds investors that technology companies have shown a fondness for, in his words, “returning gobs and gobs of cash to shareholders.” In fact, he says nearly 90% of the free cash flow in the tech sector has been returned through dividends and buybacks.

While true, many investors may have a hard time buying up shares of old guard tech names like Intel (INTC) and Microsoft (MSFT) when the big growth “new tech” names are stealing the spotlight. “We’re finally starting to see businesses start to reinvest in tech equipment and services,” he argues, which is good news for those more classic big tech names.

“European companies weren’t spending any money; U.S. companies were scaling back on things, so as that reverses a bit... we’re going to see some of those legacy expenditures on legacy systems pick up a bit.”

Related: Amazon investors stunned by size of projected loss

He points to Intel’s recent earnings report in which the company claims growth in business PC purchases.

When it comes to actually putting your money to work, Lefkowitz says his firm is a fan of broad-based tech index funds, though he contends some of those oldy-but-goody names are very well positioned to be cherry picked, too.

More from Yahoo Finance:
El Pollo Loco en fuego, Twitter sliding, Trulia jumping on buyout
Go short: 3 stocks heading lower
It’s high time we legalize marijuana: Jeff Macke