NEW YORK ( TheStreet) - With Intel ( INTC) and other hardware companies reporting growing profits lately, technology funds have been soaring.
During the past year, the funds have returned 24.7%, 10 percentage points ahead of the S&P 500, according to Morningstar. Now some analysts worry that technology shares have become too rich. Pessimists point to the sky-high prices that investors are paying for the private shares of Facebook and other Internet stars. Are technology funds headed for a fall? Not necessarily. While some hot stocks seem overpriced, the average technology fund has a forward price-earnings ratio of 16.4, compared to 14.1 for the S&P 500. The multiple seems reasonable since analysts expect the technology sector to increase sales at a 5% annual rate. That's a strong outlook at a time when the economy is expected to grow at a 3% to 4% rate. For a relatively safe way to hold technology stocks, consider Columbia Seligman Communications and Information ( SLMCX). Columbia has a long record of outperforming competitors in downturns. When technology funds lost 36.9% in 2001, Columbia stayed in the black. During the collapse of 2008, the fund outdid peers by 8 percentage points. Portfolio manager Paul Wick has limited losses by steering away from high-priced stocks. During the technology boom of the 1990s, he stayed away from expensive Internet stocks. That caused the fund to trail during the bull market. But when the high-flyers crashed, Wick avoided the worst damage. By avoiding big losses, Columbia has recorded a sterling long-term record. During the past 10 years, the fund has returned 5.0% annually, while its average peer lost 1.5%. Columbia aims to buy stocks that sell for reasonable multiples compared to their growth rates. A favorite holding is Symantec ( SYMC), a security software company that sells for a forward P/E multiple of 11. The business can increase earnings at a rate in the low to mid teens, says Richard Parower, a member of the Columbia portfolio management team. He says that the stock is undervalued because of the company's past problems. "They had execution hiccups in the past couple years, but they are finally getting their act together," he says.