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Why it’s time to be overweight technology

A trader at the New York Stock Exchange

If there is one sector you want to be in these days, it’s technology.

U.S. tech stocks happen to be among the best market performers this year, and they are likely to continue that way because of healthy long-term trends in both earnings and cash flow, together with very strong corporate balance sheets.

“Although the sector isn\’t growing earnings as strongly because it did earlier in the cycle, trends have been improving lately,” said Brian Belski, chief investment strategist at BMO Capital Markets.

He noted that tech is among the few sectors that has maintained earnings growth above 10 % during the past year. It’s also become probably the most consistent in terms of low earnings volatility, a significant reversal from what was the case merely a decade ago.

Belski also believes the sector’s natural maturation process and it is strong operating fundamentals can make it an innovator in the coming quarters, particularly given its still-reasonable valuation.

He noted that tech-sector multiples have moved only slightly higher in recent months, leaving valuations pretty attractive from a historical perspective.

“Actually, forward price multiples currently trade in a significant discount both to their longer-term historical average and in accordance with overall S&P 500 multiples,” Belski said in a research note.

The strategist also noticed that the tech sector has produced the strongest dividend growth of all sectors in the U.S. in the past five years. And also, since it’s the place to find high cash balances and low dividend payout ratios, the opportunity of dividend hikes is high.