The Only Tech Investing Indicators That Matter Today
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It’s easy to get overwhelmed by the reams of contradictory data out there.
Back on June 10, we saw a better than expected jobs report that boosted the Standard & Poor’s 500 Index to its first record height in more than a year.
After two months of “calm,” the markets took a dive last Friday after Boston Fed President Eric Rosengren started talking about overheated markets and the need to raise interest rates sooner rather than later.
It’s enough to drive tech investors crazy.
But I’m not worried about the economy. Or the tech sector, for that matter.
That’s because all three of my tech investing “Noise Blockers” – you could call them the “real news” – are moving in positive directions.
These three indicators cut through the floods of data every time. They’ve long proven to be accurate barometers of the markets – and surefire ways to instigate profits.
It’s taken me an honors degree in economics and 30 years of Silicon Valley investing to hone this system to perfection. But it’s a pretty simple system that tech investors like you can pick up and start following immediately.
Let’s get started…
Noise Blocker No. 1: Jobs and the Economy
In the early part of the economic recovery, high-tech companies weren’t too concerned about job growth. That’s because the “jobless recovery” in 2009 and 2010 actually helped the tech sector.
With sales rising, firms were able to improve productivity and increase profit margins without adding to their labor costs. Instead of people, they invested in software, business electronics, cloud computing, and robotics.
However, no industry can keep growing without solid economic expansion and lower unemployment. After all, people need jobs in order to afford the latest smartphones, HDTVs, and connected cars.
By employment standards, 2016 is a growth year. While the pace of hiring in the United States slowed in August, the economy added an average of 232,000 jobs a month during the summer.
Unemployment continues to fall. It now stands at 4.9%, just a blip up from the lowest level in a decade we hit back in May. And jobless claims as a percentage of the workforce remain near the lowest they’ve hit since the government began keeping these stats back in the 1970s.
Meanwhile, GDP growth remains steady, if not impressive.
Indicators to Follow:
- Employment Situation Report, released first Friday of the month, S. Bureau of Labor Statistics
- GDP Forecast, tracked by the Conference Board
Noise Blocker No. 2: Earnings
Next, I look at profit growth not only in the stocks I follow, but also in the various markets. Here’s why.
Stocks trade at multiples of their earnings. Generally, the higher the price/earnings (P/E) ratio – calculated by dividing a stock’s price by its earnings per share – the more valuable the stock.
And because many tech firms are growth oriented, these stocks tend to have higher multiples than the broader marker – that’s a big reason we like them.
Because I want a good forecasting statistic, I look at the forward P/E rather than at a multiple of past earnings (or trailing P/E). Specifically, I’m looking at the P/E one year out to get a sense of profit growth for the sector.
With this in mind, tech remains in great shape. The tech-centric Nasdaq 100 currently trades at 19.98 times next year’s earnings, or 7.6% higher than the S&P 500’s multiple of 18.57.
And it’s not all just about tech. We also want to see an overall healthy earnings environment. And so, you also need to take a broad look at corporate profitability.
According to data compiled by Thomson Reuters, over the past four quarters U.S. companies have beat earnings expectations at a rate of 70%. Since the early 1990s, when Thomson Reuters began tracking the so-called “beat rate,” the average has been 63%. And the national “beat rate” has been well above that all year long.
Strong earnings like this show us that these stratospheric stock prices we’ve been seeing are not unreasonable – that they’re not caused by U.S. Federal Reserve stimulus alone.
Indicators to follow:
- Nasdaq 100 Forward P/E, tracked byBirinyi Associates, updated Fridays
- “Beat Rate,” tracked by Thomson Reuters I/B/E/S
- S&P 500 Earnings Growth Rate, tracked by Standard & Poor’s
Noise Blocker No. 3: The Mobile Revolution
It never ceases to amaze me that true mass-market smartphones only debuted in June 2007 with the introduction of the iPhone from Apple Inc. (Nasdaq: AAPL).
Today, the mobile revolution is an unstoppable global trend.
And we can use mobile sales as a snapshot of the health of the overall tech industry. That’s because tablets and especially smartphones are big drivers in the demand for semiconductors, sensors, and advanced “Miracle Materials” like shatter-resistant glass.
So it’s good news for tech investors like you that sales of mobile phones worldwide are still strong, with smart devices enjoying huge growth.
The forecasting firm CCS Insight forecasts that worldwide mobile phone shipments will rise from 2.04 billion units this year to 2.2 billion in 2020.
Moreover, those analysts predict that smartphone sales will increase from 1.5 billion units in 2016 to 2 billion in 2020. That’s a compound growth rate of 7.2%.
And that means smartphones account for nearly three-fourths of all mobile phones sold this year – compared with basically zero less than nine years ago.
And it’s driving a boom in another segment: mobile commerce – that is, the buying consumers do with their mobile devices, as opposed to desktop e-commerce or storefront or catalog shopping.
U.S. mobile commerce sales grew 56.2% to $49.2 billion in 2015, according to comScore Inc. That’s nearly four times as fast as the 14.6% growth in total U.S. e-commerce sales.
Indicators to follow:
- Mobile device shipments and forecasts, tracked by CCS Insight
- Mobile commerce spending, tracked by comScore
Thus, all three of our Noise Blockers are telling me that U.S. markets – and, therefore, tech investors like you – are in excellent shape through the rest of 2016.
Of course, there’s always the risk that world events could change our situation dramatically and quickly. But right now, the risks of that occurring in the next quarter or two seem remote.
Day to day, keep your eyes on our Noise Blockers – these few regularly reported signals will help keep you on the road to wealth.
This is no time to be sitting on the sidelines. Instead, focus on tech investing – and building your fortune…
