BOSTON ( TheStreet) -- Shares of some of the biggest technology companies are on the run this year, with returns averaging better than triple that of the S&P 500. The leaders cater to big corporate customers and firms that provide cloud computing services.
And that grouping excludes everyone's current favorite, iPhone and iPad maker Apple (AAPL), which is up 64% this year.
S&P recommends that investors overweight the information-technology sector. Its S&P Information Technology Index, which represents 19.6% of the S&P 500, was up 20.1% through Sept. 10, compared to a 13.6% gain for the 500."Despite our concern about a weaker global economy given the sovereign debt issues in Europe, we see strong demand for data storage driven by increased usage of electronic recordkeeping and growing interest in cloud computing," S&P said. "We also project better sales of PCs in the second half of 2012, due in part to the launch of ( Microsoft's (MSFT)) Windows 8." But S&P Capital IQ's equity analysts have a "neutral" outlook on the information-technology sector as they expect third-quarter earnings per share growth to slow to 3.4%, half that of the second quarter, but say the weakness should be temporary and be offset by a "re-acceleration in second-half sector EPS growth, reasonable valuations, and strong and flexible balance sheets, which we think will increasingly be employed to generate value through internal investment, stock repurchases, dividends and mergers & acquisitions." And they add that the sector is still cheap, as it trades at a price-to-earnings (P/E) ratio of 13.3 for 2012, based on analysts' consensus estimates, which is below the 13.7 for the S&P 500. But that's not to say that all big tech firms are a good bet. The leading chipmaker, Intel (INTC), cast a pall on the sector last Friday when it cut its third-quarter revenue outlook by $1 billion, citing growing competition for laptop computers, from smartphones and tablets. And shares of one of the world's largest personal-computer makers, Hewlett-Packard (HPQ), are tanking, having lost 31% this year, including 20% in the past three months. On Monday, HP said it will cut up to 29,000 jobs, an increase of 2,000 from prior estimates, as it seeks to restructure, which will result in charges of about $3.3 billion through the end of its 2014 fiscal year, and another $400 million in charges relating to real estate consolidation. And the much-hyped shares of the social media site Facebook (FB), which opened with a stock price of $38 and reached $45, are now selling at $18.80. Investors also got a scare two weeks ago when Autodesk (ADSK), a leader in the computer-aided-design industry, reported disappointing second-quarter results and lowered its outlook for the year. But companies with big corporate customers and those tied to cloud computing, which refers to remote users' access of computing resources over the Internet, are continuing to see interest from investors with a long-term view in anticipation of an economic recovery. Oddly enough, one of the top-performing stocks this year, with a gain of 92%, is an old-school computer hard-drive maker, Seagate Technology (STX - Get Report). Its gains are driven by investors' anticipation of a big jump in hard-drive prices. S&P expects a rebound in the industry, following the flooding in Thailand where many factories are located. "Although we expect unit shipments of hard-disk drives (HDDs) to rise 1% in 2012, we project a 15% increase in the average selling prices due to supply constraints," it said. Prime examples of the interest in cloud computing are Rackspace (RAX - Get Report), which has gained 44% in the past three months, and Salesforce.com (CRM - Get Report), which is up 47% this year, although it just reported mixed results in its second quarter. Salesforce now has its own social-networking feature called Chatter, which links customers to deliver services and other functions from the cloud. Here are eight large-cap technology stocks presented in inverse order of their year-to-date share price gains:
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