Technology stocks are back.
A four-day rally in the Nasdaq 100 Index has pulled the gauge within 0.1 percent of erasing a 7.5 percent selloff from earlier this year. Exchange-traded funds that buy computer and software shares absorbed $1.1 billion of fresh cash last week, more than any other industry tracked by Bloomberg. That’s a reversal from earlier in 2014 when investors were taking money out of the ETFs.
Google Inc., Facebook Inc. and Apple (AAPL:US) Inc. are up more than 9 percent in the past month as investors shopped for larger companies with stable earnings and found bargains among shares that had fallen the most. While shares of EBay (EBAY:US) Inc. and Amazon.com Inc. have yet to recover, ETFs tracking the industry have done well, thanks to higher weightings of bigger stocks, according to Kevin Divney, chief investment officer at Beaconcrest Capital Management.
“Looking at the economy, one of the most compelling secular growth stories is technology and that’s not going to change,” Divney said in a phone interview last week from Boston. “As some of the high-flying tech companies with higher valuations were down 10 to 20 percent over the past six weeks, investors are going to start to see value.”
The PowerShares QQQ Trust (QQQ:US), the biggest technology ETF, attracted almost $1 billion last week, the largest deposit since March, data compiled by Bloomberg show. About $2.9 billion was pulled out in April, the most since 2000.
The Nasdaq 100 slipped 0.3 percent at 10:42 a.m. in New York.
Money has flowed away from stocks with higher valuations and into bigger companies with less volatility. Apple, the maker of iPhones and iPads, has jumped 19 percent since April 23 after posting a better-than-forecast quarterly profit and boosting its share buyback by $30 billion.
Cisco (CSCO:US) Systems Inc., the world’s largest networking-equipment maker, this month gave a forecast for fourth-quarter profit and sales that topped analysts’ estimates. The stock is up 6.9 percent in May. Google, which went public almost a decade ago, has seen its Class A shares rise 7.5 percent this month.
The rally prompted a resumption of money flows to computer shares. Before last week, technology ETFs lost $4.4 billion in 2014, the most among 12 sectors, data compiled by Bloomberg show. In the previous year, the funds attracted more than $10 billion, making them the most popular, the data show.
Facebook has climbed 10 percent in the past month and trades at more than 80 times earnings. The world’s largest social-networking site in April reported first-quarter profit and revenue that beat analysts’ estimates.
Technology shares need earnings to improve to sustain gains, according to James W. Gaul, a portfolio manager at Boston Advisors LLC, which oversees about $2.7 billion from Boston. Apple, Microsoft Corp. and International Business Machines Corp. are forecast to increase profit by 8.7 percent on average next year, data compiled by Bloomberg show. That compares with 12.3 percent for estimated growth in the overall industry.
“The general view on some of the old, larger tech names is that growth is slowing pretty substantially,” Gaul said by phone last week. “It’s going to be some of the smaller names that have more exciting products and actually have meaningful growth over the longer term.”
The recovery this month has been smaller for Internet stocks. Amazon.com (AMZN:US), an online retailer trading at 505 times reported earnings, is up 2.2 percent in May. The stock is still down 22 percent for 2014. EBay has lost 0.1 percent this month. The company is being probed by at least three states after the online marketplace revealed it was hit by a cyber-attack.
The Nasdaq 100 reached a 13-year high on March 5 and then fell through April for the first back-to-back monthly losses since 2012. The gauge is up 3.9 percent this month.
“It was a sector that just fell out of favor over the last couple of weeks and got probably cheap enough that it looked like, on a relative value, to be the place to put money,” Bill Schultz, who oversees $1.2 billion as chief investment officer at McQueen Ball & Associates in Bethlehem, Pennsylvania, said by phone on May 23. “It’s probably worth picking up some of the riskier plays here on the rebound chance.”