Tech stocks are trading at all-time low multiples while posting "terrific corporate profits" and "really strong" capital spending, said one analyst, suggesting they are a bargain.
"We tend to think the software sector is OK, barring a recession, and valuations are at all-time lows," said Rick Sherlund, head of U.S. technology equity research at Nomura Securities. "If the market doesn’t go to a recession , I think the stocks have a long way to run."
Nasdaq market multiples are about half of what they once were in the last nine years and are even more compressed in the software sector, he said.
Investors should look for margin expansion stories and consolidation in the tech sector, Sherlund said.
He added that he is particularly excited about the vertical integration of the tech industry, notably when Oracle bought Sun Microsystems in 2010. Since completing the Sun acquisition last year, Oracle is now shipping a product that combines its own hardware and software.
Wall Street will get its first read on the performance of the software space and whether there are order delays when Oracle releases its first-quarter earnings on August 20.
Sherlund mentioned Microsoft , which is trading at an all-time low in valuation, as an interesting stock right now. The company will host a developers' conference next week, where it is supposed to release the beta test of Windows 8.
With next year's release of the new generation of UltraBooks, thin personal computers with touch capabilities, Sherlund said Microsoft could do well in the corporate market. He added that Microsoft will not win the consumer market since Apple "does a better job there."
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Nomura Securities International makes a market in the securities of Microsoft.