4th September 2013
Vodafone shareholders should shun further telecom investing and plough their windfall cash into mid cap tech stocks says Eurof Uppington, manager of the Lombard Odier Technology.
Perhaps unsurprisingly for a tech manager, he says that recycling any dividend from Vodafone back into telecoms doesn’t make a lot of sense.
In a note, he says: “In telecoms, capital expenditure is rising, competition isn’t going away, and while consolidation is a tailwind, it’s very unpredictable. Vodafone is going to plough the money they keep into buying EU cable TV assets, which might work but is a risky strategy.”
“Tech is as good as anything out there; you’re not paying a premium for the sector despite the superior growth attributes, you have the strongest balance sheets and cash flow yields in the stock market, and it’s going to be one of the biggest beneficiaries of ongoing outflows from bonds into equities in the next few years. Plus, you have these great Internet trends — particularly mobile Internet, leading to excellent opportunities in stocks like Facebook, LinkedIn, TripAdvisor, and Priceline, and also in Chinese Internet stocks as the market and economy there stabilises”.
He says the in Europe the development of Cloud technology continues to be a very important theme.
He says: “We also think IT capital expenditure, first in the US, and soon in Europe, is on the up. The best place to invest here is in Cloud technology companies, which deliver IT services over the Internet, rather than through a connection to a server. But it’s even spreading to some of the traditional telecom equipment names — look at the performance of Alcatel, where you also have restructuring upside, and Ciena, which has reported on Wednesday and is up almost 12 per cent.”
“Clearly, the big, classic names like Microsoft or IBM aren’t where the upside is. Better to go for the pure-play midcaps that are more able to tap into these trends, and of course, may be bought out by the big guys. These include companies like LinkedIn, TripAdvisor, Alcatel and Ciena, as well as cloud names like Splunk, Qlik, and ServiceNow”.