NEW YORK — Whenever you hear, “this time is different,” the wise move is usually to ignore it.
But when it comes to technology stocks, which are flying at levels unseen since the dot-com boom was about to go bust, mutual-fund managers are insisting that this time really is different. And they’re largely right.
The Nasdaq composite index is trading near its record level set in 2000, but the lofty level is better supported this time. Tech companies are more profitable, and they’re paying dividends. Analysts are judging them based on how much cash they generate rather than how many eyeballs they attract on the Internet. And investors are now only mildly interested in tech funds, instead of clamoring for them.
That means fund managers don’t expect a repeat of what happened the last time the Nasdaq was this high, when the index went on to plunge nearly 80 percent in less than three years. And strategists along Wall Street, from Goldman Sachs to Deutsche Bank, say technology remains one of the more attractive sectors of the market.
To be sure, warning signs are flashing that the overall stock market may be too expensive. The Standard & Poor’s 500 index is trading at close to its highest level in a decade relative to its earnings. And particularly high valuations for pockets of the tech sector are making bargain-hunting investors wince, such as the hot social-media and big-data arenas. But fund managers say big, well-established tech stocks still look ready to deliver more gains.
Among the reasons managers say tech is much better positioned now than in 2000:
• Profits are bigger. Tech companies slashed costs to improve profitability after the dot-com bubble burst. The sector is reaping the benefits. Tech companies kept about 18 cents of every $1 in revenue as operating profit last year, more than any other sector and nearly double the average for the S&P 500.
• Valuations are better. The price of a stock generally depends on how much profit a company generates and how much investors will pay for it. Because tech companies are earning much more than in 2000, their price-earnings ratios look much more reasonable.
• Dividends exist.
Technology is now the biggest dividend payer of the 10 sectors that make up the S&P 500 and has a yield of 1.5 percent.
• Investors are more skeptical. In 2000 investors scrambled into tech stock funds, and the demand pushed valuations ever higher. Investors are now more circumspect. They put a net $1.8 billion into tech mutual funds and exchange-traded funds in the past year, according to Morningstar. That’s less than went into such niche categories as global real estate or gold mining stocks.
