Be careful with tech in 2011, cautioned Richard Davis, managing director and senior software analyst at Canaccord Genuity.
Tech stocks have been the high flyers this year, with the Nasdaqbeating both the Dowand S&P 500indices. But Davis advised that going forward, investors must watch out for stocks that might be too pricey.
“As a general sense, we’re bullish on software, but there’s going to be a shift from growth-at-any-price to growth-at-a-reasonable-price,” he told CNBC. “So this year’s winners could take a pause for the next 2 or 3 quarters.” (Watch the Full Interview With Davis Here.)
Companies that look expensive include Logmein, Realpage, Opentable, Successfactors and Salesforce.com, said Davis.
“They’re all good companies, but they are trading at 8.5 times 2011 revenues and at over 100 on a P/E basis,” he explained.
Instead, Davis favors the following firms:
Pegasystems—“Think of them as the UN translator for software,” he explained. “They link together applications that don’t talk to each other—so that saves companies money.”
Constant Contact—“They sell themselves to the small business community,” he said of the firm. “They help you do marketing, email or social media connections and the small and mid-size businesses are seeing a pick up.”
Intuit—“They’re trying to make a big move into India.”
More Market Opinion—Read and Decide:
- This Chipmaker Can Jump 40% Next Year: Analyst
- 10 Winning Tech Stocks You Need to Own: Strategists
- 5 Stocks With Triple-Digit Price Tags We Like: Pros
CNBC Data Pages:
Davis does not own shares of SFSF, OPEN, CTCT, PEGA, ASDK or INTU.
Canaccord Genuity or any of its affiliated companies is a market maker or liquidity provider in the securities of SFSF, OPEN, CTCT, PEGA, ADSK and INTU.
Canaccord Genuity intends to seek or expects to receive compensation for corporate finance/investment banking services from SFSF, OPEN, CTCT, PEGA, ADSK and INTU.
PEGA currently is, or in the past 12 months, was a client of Canaccord Genuity or its affiliates and was provided with non-investment banking securities-related services.
In the past 12 months, Canaccord Genuity or affiliates have received compensation for corporate finance/investment banking services from PEGA.