Many companies worldwide have used low interest rates and economic recovery to put their balance sheets in order. And now many of these are beginning to invest their high cash reserves in business expansion and, in particular, new information technology.
New equipment purchases will fuel production, which, given the brighter economic forecasts, should translate into improved earnings. Expenditures for IT by global companies in 2014 is expected to grow by 3 to 5 percent and by 4 to 6 percent in 2015. This is an opportunity for investors – despite high profitability, the major companies in the technology industry have relatively low ratings.
The aphorism that “a rising tide lifts all boats” is, nevertheless, not applicable in this case. Induced by technological advancements, corporate investment may give the heavyweights a momentum for the short-term at most. This would be true for companies in the field of hardware such as Dell and IBM. IBM’s downward trend – the company reported a decline in earnings for the ninth quarter in a row – is not likely to be stopped by the updating cycle. That does not mean the old names in the hardware sector should be written off, however.
Exceptions are the companies that have recognized the signs of the times. Among them is Hewlett-Packard, which reacted to changes in the marketplace with a major restructuring program and has a high-margin business with its printers.