Technology companies still may offer opportunities to profit even as they show signs of overvaluation, Gamco Investors Inc.’s Mario Gabelli said.
“You have these challenges all the time in the markets,” Gabelli, the chairman and chief executive officer of Gamco in Rye, New York, said today in an interview on Bloomberg Radio’s “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “The market is allocating capital, sometimes it allocates it poorly,” he said. “We’ll live with it, we’ll figure it out, we’ll try to make money out of it some at point in time.”
U.S. technology companies are trading at higher valuations than the Standard & Poor’s 500 Index (S5INFT), based on the past 12 months’ earnings and estimates for the next year. Gabelli said while there may be some similarities to the technology bubble that burst in the late 1990s, his firm is evaluating companies such as Zynga Inc. (ZNGA:US), the social-gaming company that went public in December, and looking for stocks it believes are mispriced.
“The capitalistic system as an allocator of capital has a lot of inefficiencies,” he said. “Social media is clearly the new frontier, everyone says this time it’s different, you’ve got to own the Zyngas of the world and so on. And we are examining these.”
Technology companies in the S&P 500 trade at 16 times earnings from the past year, compared with 14.2 for the entire index. For earnings in the next 12 months, computer makers, software developers and Internet shares are trading 3.4 percent higher than the S&P 500, data compiled by Bloomberg show.
A gauge of technology stocks is up 19 percent year-to-date, the most among 10 groups in the S&P 500. Earnings for the quarter ended Dec. 31 beat estimates by 10 percent, the best among the 10 groups and compared to the S&P 500’s overall earnings exceeding estimates by 3.4 percent, data compiled by Bloomberg show.
Tyco International Ltd. (TYC:US) is a stock worth considering, Gabelli said. The Schaffhausen, Switzerland-based company is spinning off its flow-control unit to Pentair Inc. in a deal that will give Tyco shareholders a majority of Pentair and values (TYC:US) the unit at $4.53 billion. The company is worth more separated into those parts than its current share-price value shows, Gabelli said.
“These spinoffs create values, they create opportunities, and we’re focusing right now on Tyco,” Gabelli said.
Tyco shares (TYC:US) climbed 0.3 percent to $53.29 at 1:12 p.m. in New York today, its first gain in five trading sessions. Before today, the shares had advanced 14 percent in 2012, compared with an 8 percent gain for the S&P 500.
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