Analyst backs tech stocks

Tech stocks are less risky than their resources counterparts and should continue to fare well despite an overall pullback in the investment market, according to a leading market analyst.

ABN Amro Morgans senior analyst, Scott Power, said the Australian IT sector had proven less volatile than traditional areas of investment including the resources industry. He attributed this success to more sustainable earnings and better strategic business practices.

"Generally, the IT space has fared pretty well - both IT products companies as well as IT services providers," he said. Local software vendors such as Technology One, as well as NT-based integrator, CSG, and Queensland's Data#3, were strong performers, he said.

"In the post tech bubble of 2000, there's been much more caution about technology companies, but if you look back at some of the technology companies - both software vendors and services companies - they have built sustainable businesses over the past seven years," Power said. "Tech companies have been providing good dividends, and are profi table. And our expectation over the next 12-24 months is that this segment of the market remains solid."

Although the tech sector accounts for a small fraction of the overall investment market, with only a handful of listed companies to choose from, revenues were strong across the board.

ABN Amro Morgans is predicting overall market volatility will continue throughout the year driven by consolidation and general market pullback.

"Our general view is that 2008 will be driven by sideways trading," Power said. "I don't think we'll see the growth in the stock market that we have seen in the last three or fours years. Having said that, companies are still optimistic and their earnings outlooks reflect that."