Smaller tech stocks thrive even as large names get hammered

By Chuck Mikolajczak

NEW YORK (Reuters) - The technology sector has taken it on the chin in recent days, after lukewarm-to-disappointing results from a range of bellwethers such as Apple, Alphabet and Microsoft, but stocks of smaller tech companies have managed to buck the downtrend.

The S&P technology index <.SPLRCT> has tumbled nearly 4 percent during the past five days, dragged lower by sharp declines among some of the biggest tech names. Apple and Microsoft are off nearly 9 percent while both classes of Alphabet shares have tumbled more than 7 percent.

There has been no such weakness among smaller stocks. The S&P Midcap tech sector <.SPMDCT> has climbed 0.8 percent while smallcap tech <.SPSMCT> has advanced 1 percent.

 

"The smaller names aren't in everybody's portfolio, the bigger names are, that's why I would assume retail and institutional investors are selling their tech," said Kim Forrest, senior equity research analyst, Fort Pitt Capital Group in Pittsburgh.

"Maybe the big cap is really the consumer-focused tech and media names and they deserve the selloff because they are not performing."

While many of the smaller names are not expected to report until later in the earnings season, many of those that have reported already have posted positive results.

Among midcaps, Advanced Micro Devices has surged more than 38 percent after besting forecasts last week.

Smallcap Anixter International is up 10.7 percent as the best performer in that index for the past five sessions after posting results that topped expectations.

"Expectations have been relatively low and as we go through earnings season, you are definitely seeing those areas - the smaller companies - with the larger earnings beats," said Eric Marshall, director of research at Hodges Capital Management, Dallas.

Some smaller tech names have also benefited since the start of the year from merger activity that, while slowed, has not disappeared completely.

Checkpoint Systems is up more than 60 percent for the year after it agreed to be acquired by CCL Industries Inc for about $422 million. Coherent Inc is up 50 percent on the year after it reached a deal to buy Rofin-Sinar Technologies for about $942 million.

"It dried up a little bit but every company out there that is large enough to do an acquisition is always doing acquisitions, they may not be completing them but they are talking to people," said Forrest.

(Reporting by Chuck Mikolajczak; Editing by David Gregorio)