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If you're an individual investor putting money to work in the technology sector, Jim Cramer says there's something you should know.
"Portfolio managers look at the huge technology sector through a bifurcated prism," Cramer said. "Individual investors may not understand that."
Cramer says that pros essentially assign stocks in this sector to one of two categories, old tech or new tech.
In the old tech category, Cramer says pros lump companies as wide ranging as Intel, and Microsoft, to Oracle, Texas Instruments, Hewlett Packard, IBM, and Apple. Essentially, the group is big cap tech companies that have been in business a while.
"And in the other group are all of the companies that have sprung up somewhat recently, in what some consider Internet 2.0," Cramer added. Concur Technologies, Workday and Salesforce.com and other software as a service companies are in this category. So are e-commerce related companies, such as Yelp and Zillow as well as big data analysis firms such as Tableau and Splunk.
Cramer says it's important to understand this distinction because the two categories don't necessarily trade in tandem, even though both represent plays on technology.
And through the final month of the quarter as well as the first half of the year, Cramer is hearing that big hedge funds view old tech as far more preferable to its new tech counterpart.
"I think after the recent bounce in new tech, pros view these stocks as somewhat extended," Cramer noted. "However, old tech seems like a value, with buyers attracted to the strong fundamental underpinnings as well as the dividends and buybacks."
If you find it hard to believe that pros would prefer old tech behemoths to nimble new tech firms, Cramer says look no further than the recent price action in Salesforce.com and Microsoft after t in which Microsoft will integrate rival Salesforce.com apps into its Windows and online Office platforms. Although Cramer believes the deal benefits both companies, shares of Microsoft rallied while Salesforce.com declined.
"I think the price action reflects the soul of tech investors. It says to me new tech has run too far. Otherwise I think the Street would see the deal could generate needle-moving gains for Salesforce."
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Therefore, if you're looking to establish a new position in a technology company, Cramer says keep the distinction in mind, old tech and new tech are viewed very differently on Wall Street. And while new tech has bounced, recently, "Old tech has been plodding along," said Cramer. "After taking a bath on new tech, I'm hearing hedge funds view old tech as the place to be."
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