Why the best could be ahead for soaring tech stocks

Tech stocks have reached the highest levels in 16 years, but two strategists say there's more to come, deeming the group one of the best to buy right now.

One look at the XLK — the exchange traded fund tracking technology, the sector with the greatest weighting in the S&P 500 — will show the group has risen steadily and hit its highest levels since 2000.

Eddy Elfenbein, editor of the Crossing Wall Street blog, said Friday on CNBC's "Trading Nation" that tech stocks today do not resemble 1999 or 2000, the so-called dot-com bubble, with "a lot of smaller companies, with not much in the way of earnings; or if they had earnings, they were trading at huge, huge multiples to them."

"Lately with the tech sector, I think the fundamentals have been driving it," said Elfenbein. "It's looking quite good."

Elfenbein says he particularly likes Microsoft, noting a solid earnings report and dividend, and the company adapting to a new climate for tech, moving into the cloud space.

The tech sector is really making their returns the old-fashioned way; they’re beating earnings.chief market strategist, ConvergexNick Colas

This quarter, Amazon's earnings beat expectations by a long shot. Facebook's earnings beat analysts' expectations, as did Microsoft's and Apple's.

Another strategist, Nick Colas of Convergex, says he still generally sees quite a bit of interest from clients in the tech space, and believes the group is a good place to be for the back half of the year.

"They had to live through some choppiness in the first half of the year," said Colas on Friday's "Trading Nation," adding that the payoff came at the end of July, when the tech sector "is really making their returns the old-fashioned way; they're beating earnings."

One "hidden upside" in the group, noted Colas, is its connection to a weaker U.S. dollar, falling this week following the Federal Reserve's decision to hold off on hiking interest rates.

Tech, said Colas, is the "most exposed" to the dollar of any of the 10 major S&P sectors, as a large chunk of its revenue — 59 percent, says Colas — comes from overseas.

"So if the dollar weakens further on this bad news that we are getting from the U.S. economy, it actually helps technology earnings for the back half of the year."


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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