Intel stokes hopes of tech-sector bulls

Intel Corp.’s first-quarter profit report could give investors a good reason to take another look at the beaten-down technology sector.

After markets closed Tuesday, the chip giant said it earned $1.44 billion, or 25 cents a share, in the quarter, matching analysts’ expectations. Net profit was down 12% from a year ago because of one-time charges, but operating profit was up 23%.

More important was that the company was upbeat about its sales and profit-margin outlook in what it called "a solid global market environment." That helped to damp concerns that world demand for tech equipment could wane this year.

Intel’s stock surged to $22.61 in after-hours trading Tuesday from its regular-session close of $20.91, setting the scene for a jump as trading begins today.

At the end of last year, tech stocks had been touted by their fans as a smart place to be in 2008. The idea was that robust foreign demand for tech equipment would make up for any U.S. weakness. But when credit-crunch fears slammed the stock market in the first quarter, tech issues went with the flow. It didn’t help that Intel in January reported fourth-quarter sales that fell slightly short of expectations.

Now, Wall Street analysts are betting that tech companies in the Standard & Poor’s 500 index will report overall operating earnings growth of 7% in the first quarter compared with a year earlier, according to data tracker Thomson Financial. If that estimate is on target, the tech sector would have the second-best growth of the 10 major S&P industry sectors, after energy.

Brian Barish, who manages the Cambiar Opportunity stock mutual fund in Denver, owns Intel for what he expects to be a continuing overseas-growth story. About three-quarters of the company’s chip revenue comes from outside the U.S.

"I see it as an excellent story over the next five years," Barish said.

Another of his picks: Santa Ana-based computer wholesaler Ingram Micro. "I think it’s very cheap," he said of the stock.

Craig Hodges, co-manager of the Hodges Fund in Dallas, thinks investors are missing a long-term opportunity in computer networker Cisco Systems Inc. The stock’s plunge from $34 in November to about $23 now has left it selling for about 15 times this fiscal year’s estimated earnings per share. "That’s amazing to me," Hodges said.

But then a lot of tech stocks are priced at levels, relative to earnings, that seem cheap compared with a few years ago -- let alone compared with the absurd price-to-earnings ratios at the dot-com bubble’s peak in 2000.

With tech, "People have been so unwilling to pay up for too long," says Jason Trennert, investment strategist at Strategas Research Partners in New York.

That’s what happens after a bubble bursts, of course: Nobody wants to get fooled again, at least not in the same stocks.

Trennert thinks the caution is overdone. Given its growth potential, he says, "Tech is the sector I like the most now."

Let's see what IBM Corp. has to say today when it reports first-quarter results.