Techs Fared Worse Than Financials In Q1: The Plague Of The High PE

With all of the carnage in the financial sector it would be hard to believe that any other group of stocks could have done worse. The technology sector claims that, for the most part, it has not done badly. Overseas business has helped offset slowing in the US, and almost every large tech company posted significant profits in the last reported quarter.

But, tech stocks, as a whole did not do as well as financials based on companies traded as part of the S&P 100. While Citigroup (NYSE: C) was down 29% and Merrill Lynch (NYSE: MER) was down 26%, Amazon (NASDAQ: AMZN) sank 25% and Google (NASDAQ: GOOG) was off 37%.

The list goes on, but the fact is that, looked at as a pool of the ten largest financial companies and ten largest techs, the "hot’ sector has a very bad quarter. Apple (NASDAQ: AAPL) may have been off 28% but Freddie Mac (NYSE: FRE) was down only 25%.

Some companies in each sector did fine, or, at least better than their peers. Cisco (NASDAQ: CSCO) and Oracle (NASDAQ ORCL) had more modest losses than most big firms in the sector. Ditto Bank of America (NYSE: BAC) and Morgan Stanley (NYSE: MS).

There is a reason techs did poorly, and, in a bad market, that is not likely to go away. Amazon still has a PE of 63. Even after a huge sell-off, Google’s is 33. VMWare’s (NASDAQ: VMW) is 70.

A stock market sell-off takes down the high-fliers just as fast as it does troubled sectors. Tech may have not found a price foundation.

Douglas A. McIntyre