Technology Play: Which Sub-sectors or Stocks to Buy?

Last week, tech stocks have chalked up significant gain. If you wondering how to identify laggard tech stocks to add to your portfolio or watch list, this is one way you can consider.

Firstly, you need to identify which sub-sectors have shown out-performance. The Technology sector is divided into 4 sub-sectors: Digital Services, Semiconductors, Software and Technology Equipment. Below I have shown the steps to look at one of the sub-sectors, Digital Services. Then you choose "Price Change" and sort it by "Descending" order to filter out the out-performers.  

Diagram 1: How to pick out stocks in a sub-sector within the Technology sector

Below are the tables of out-performers for all the 4 sub-sectors of the Technology sector. You would notice that there are more gainers among the "Semiconductor" and "Technology Equipment" sub-sectors. This is not surprising as Malaysia is stronger in manufacturing than software or services.


Table 1: Top performers in the Digital Services sub-sector within the Technology sector


Table 2: Top performers in the Semiconductor sub-sector within the Technology sector


Table 3: Top performers in the Software sub-sector within the Technology sector


Table 4: Top performers in the Technology Equipment sub-sector within the Technology sector

After you have narrowed down the out-performing sub-sectors, you can choose the stocks to track or to buy. Assuming you want to buy the laggards; you should study their financial performance and the reason for their poorer financial performance. If you feel that the poorer financial performance may change, and the company's financial position is fairly sound, then you may position yourself in these laggards and wait for their turn to go higher.

You may try the same approach for Health Care sector. You will soon get the confirmation that this sector is pretty much all about glove stocks.

Diagram 2: How to pick out stocks in a sub-sector within the Health Care sector


Table 5: Top performers in the Health Care Equipment & Services sub-sector within the Healthcare sector

Look at the long list of out-performing glove stocks & related CWs above. The laggards among the glove stocks are not really laggards nor are they cheap. In my opinion, the whole glove stocks universe has gone up so much that you have to accept them not as value stocks, but as growth stocks which come with a high premium. The high premium can be justified if the earnings growth continues. If it stopped - or the market perceived that it may stop - the rollback can be very sharp.

That's what happened in late June when the market learned that glove prices have softened (here). Since then, the share prices rallied again, which could only mean that the report of the softening of glove prices was wrong or exaggerated. Anyway, that's the risk that you have to take if you get into glove stocks now.

The above are the steps that you can use to identify the out-performing sub-sectors in the Technology and Health Care sectors, and then you can pick up certain stocks to buy or track according to your investing or trading strategy. Good luck!