For investors who've made money in energy and materials stocks and are now looking for another way to play the market, the chief institutional strategist at RBC Dominion Securities Inc. says it may be time to look at the TMT sectors - that is technology, media and telecom for those who have forgotten.
RBC's Myles Zyblock noted in a report Wednesday morning that those sectors sat out most of the North American bull market over the last four years, but he says they now seem to be trying to mount a comeback.
The turn for the better for those groups - which were all the rage in the late 1990s but have basically kept a low profile since the tech bubble burst - came last year, Mr. Zyblock said. Telecom stocks rose by more than 30 per cent and media issues climbed close to 25 per cent, handily outpacing the broader market in 2006, while tech stocks started to perk up mid year. They have been among the better performing sectors since that time.
"Undoubtedly, a relatively firm bid has been placed under the group as a result of [merger]speculation and activity and the pressure placed on a few stalwart companies by activist shareholders over the past year," he said. But that alone doesn't explain the renewed interest in the sectors. "We believe that pristine balance sheets, especially among larger constituents, emerging signs of fundamental improvement, and some uncertainty surrounding the outlook for the current cycle's leadership themes (e.g. energy, materials and select industrials) are beginning to move investors into the TMT segment," he added.
Mr. Zyblock reiterated his overweight recommendation on North American media and telecom names and a market weight in tech. He suggests that investors focus on segments within those sectors where investor sentiment is depressed, but is turning in a favourable direction, or where opportunities for additional upside still exist. In tech, he recommends software and semiconductors over semiconductor equipment names. And in media, he favours the laggards like movies, entertainment and publishing. In telecom, he likes the integrateds, but says "a punt at wireless could prove rewarding."
Among his large-cap choices in media are CBS Corp., Walt Disney Co., and Time Warner Inc.; in tech, Applied Materials Inc. and Xerox Corp.; and in telecom, AT&T Inc., Telus Corp. and Verizon Communications Inc. In the small and mid cap space media stock picks include Cossette Communication Group Inc. and Quebecor Inc. B shares; in tech: Open Text Corp., CGI Group Inc. and MKS Instruments Inc.; and in telecom: Atlantic Tele-Network Inc. and Cincinnati Bell Inc.