Investment: Should you invest in... information technology?

ONE OF the difficulties with assessing information technology stocks is that they do not form a single sector. The bulk are split between electronic and electrical equipment and the catch-all support services sector. Most technology fund managers will also have a significant exposure to telecoms companies as well.

A second problem is determining which IT stocks are actually going to make any money. "The problem with the market in IT stocks has been its predictability of earnings," comments John Pullar-Strecker, head of the global technology desk at Aberdeen Asset Management.

"If you have a slowdown in spending on software, because that spending has been deferred, then earnings are going to be very uneven."

But, he says, "the key to the IT sector is global development. You have to ask what does a UK company have to offer to the world, or is it just going to concentrate on the UK or Europe? If you are looking for global companies that are based in the UK, the obvious one is ARM Holdings. It produces specialist microprocessors for equipment that needs low power.

"The company has a global presence although that is already reflected in its share price. Its technology is not exactly unique, but competition is sufficiently small for it to hold a strong position, supplying to companies like Nokia and Ericsson. That is the kind of company that is going to be successful, providing it can manage its growth."

Investors who can choose, therefore, tend to concentrate on smaller, growth stocks. "The ones that are particularly like that in my portfolio at the moment are Royalblue and DCS Group," says Nigel Thomas, manager of ABN Amro's UK Growth Fund. "Royalblue is definitely my best pick. It is in helpdesk and financial software and growing at 30 per cent per annum. Its p/e is up there with the rest of the sector, but it is not exorbitant and it has just had some excellent figures."

Thomas argues that Royalblue has the sort of attractive market niche that investors should be looking for.

"Bill Gates is on record as saying that the helpdesk software market will show annual growth at 25 to 30 per cent for the next five years, and Royalblue is a major player in that market," he says.

"This is software that can handle inquiries and link that to a client company's systems. There is a general convergence of software and systems on a global scale so helpdesks can be based in Dublin or Bangalore or wherever."

Nigel Thomas's other current star has a more specific focus. "DCS is more involved with software for financial dealers. It meets my criteria of looking for good companies that are not on excessive ratings. It is also important that these are not `blue sky' companies - you are looking at actual businesses," he says.

But what if you want to take a punt on some of Thomas's `blue sky' companies? "JSB Software Technologies is an AIM stock that provides access control software, for example, to dealing services to prevent dealers doing their own thing and it is actually making profits from a former business." Thomas says.

"I think the best Internet service provider is Easynet [also AIM listed], which is a UK business but is also in Germany and other parts of Europe.

"Its strength is that it is attacking the corporate market, signing up a client and helping them develop their website and then developing other services from there."

PROMOTED VIDEO
News
ebooksNow available in paperback
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Citifocus Ltd: Newly Qualified Accountants - Risk Mgmt

£Attractive Package: Citifocus Ltd: Prestigious financial institution seeks to...

Citifocus Ltd: Operational Risk Analyst

£Negotiable: Citifocus Ltd: Experienced operational risk professional with ban...

h2 Recruit Ltd: Business Development - Telecommunications - £50,000 OTE

£25000 per annum + £50,000 OTE: h2 Recruit Ltd: London, Reading , Southend, Al...

Recruitment Genius: Call Centre Agent - £22,000 OTE

£18000 - £22000 per annum: Recruitment Genius: As a Call Centre Agent you will...

Day In a Page

Homeless Veterans Christmas Appeal: Drifting and forgotten - turning lives around for ex-soldiers

Homeless Veterans Christmas Appeal: Turning lives around for ex-soldiers

Our partner charities help veterans on the brink – and get them back on their feet
Putin’s far-right ambition: Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU

Putin’s far-right ambition

Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU
Tove Jansson's Moominland: What was the inspiration for Finland's most famous family?

Escape to Moominland

What was the inspiration for Finland's most famous family?
Nightclubbing with Richard Young: The story behind his latest book of celebrity photographs

24-Hour party person

Photographer Richard Young has been snapping celebrities at play for 40 years. As his latest book is released, he reveals that it wasn’t all fun and games
Michelle Obama's school dinners: America’s children have a message for the First Lady

A taste for rebellion

US children have started an online protest against Michelle Obama’s drive for healthy school meals by posting photos of their lunches
Colouring books for adults: How the French are going crazy for Crayolas

Colouring books for adults

How the French are going crazy for Crayolas
Jack Thorne's play 'Hope': What would you do as a local politician faced with an impossible choice of cuts?

What would you do as a local politician faced with an impossible choice of cuts?

Playwright Jack Thorne's latest work 'Hope' poses the question to audiences
Ed Harcourt on Romeo Beckham and life as a court composer at Burberry

Call me Ed Mozart

Paloma Faith, Lana del Ray... Romeo Beckham. Ed Harcourt has proved that he can write for them all. But it took a personal crisis to turn him from indie star to writer-for-hire
10 best stocking fillers for foodies

Festive treats: 10 best stocking fillers for foodies

From boozy milk to wasabi, give the food-lover in your life some extra-special, unusual treats to wake up to on Christmas morning
Phil Hughes head injury: He had one weakness – it has come back to haunt him

Phil Hughes had one weakness – it has come back to haunt him

Prolific opener had world at his feet until Harmison and Flintoff bounced him
'I have an age of attraction that starts as low as four': How do you deal with a paedophile who has never committed a crime?

'I am a paedophile'

Is our approach to sex offenders helping to create more victims?
How bad do you have to be to lose a Home Office contract?

How bad do you have to be to lose a Home Office contract?

Serco given Yarl’s Wood immigration contract despite ‘vast failings’
Green Party on the march in Bristol: From a lost deposit to victory

From a lost deposit to victory

Green Party on the march in Bristol
Putting the grot right into Santa's grotto

Winter blunderlands

Putting the grot into grotto
'It just came to us, why not do it naked?' London's first nude free runner captured in breathtaking images across capital

'It just came to us, why not do it naked?'

London's first nude free runner captured in breathtaking images across capital