Stocks reap tech rewards with less risk
Investors looking to reap the rewards of the tech stock boom without the risks of high-flying tech companies may need look no further than their office temps, mail carriers or landlords.
Numerous companies not traditionally associated with the "new economy"--from shipping conglomerates to real estate firms--have jumped on the tech sector's coattails in recent months. Several have done so well that financial experts are recommending them to cautious investors who want to participate in the tech surge without taking big chances with their nest eggs.
"Some people want to make money without having the fear of losing money, and for them the direct play on Internet stocks will not be appropriate," said Sunil Vidyarthi, who manages more than $40 million as president of Value Sciences Investment Counsel and Tristar Mutual Funds. "For them, industries like banks, insurance companies, travel, even manufacturing are good bets...These are lower risk compared to direct Internet companies like Ariba, Tibco and Akamai."
Several temporary staffing companies, for example, have recently become Wall Street darlings, propelled in part by the technology sector's voracious demand for employees.
Stock of Milwaukee-based staffing provider Manpower increased about 50 percent in the past three quarters, thanks to the tech boom in the United States as well as Europe's strengthening economy. Manpower provides work for more than 840,000 people annually and contracts with 96 percent of the Fortune 500 companies.
Shares of Calabasas, Calif.-based On Assignment have more than doubled in the past six months, thanks in part to historically low unemployment fueled by the tech sector's boom.
Stock of New York-based staffing provider Volt Information Sciences, the largest provider of temporary staffing to Microsoft and Lucent, have climbed 50 percent since the start of the year.
San Francisco-based Hall Kinion & Associates, which provides information technology contractor workers in the United States and Europe, has seen its stock surge more than 300 percent in the past year.
Those numbers may not be impressive relative to the one-year, 650 percent ascent of Qualcomm stock. But Volt, which has had Hewlett-Packard as a client for 20 years, isn't considered nearly as risky as the San Diego-based communications technologies provider.
"We've been public for 35 years; we've just been hiding all this time," said Ron Kochman, manager of investor relations for Volt, which provides staffing for information systems and telecommunications companies. The company's 30,000 contractors include Web developers, e-commerce specialists and others, with some wages exceeding $100 an hour.
"We made a conscious decision to go into these growth areas because a lot of the work is project-oriented," Kochman said. "Microsoft wants someone to work on Windows 2000, but once that project is over there's nowhere to put them, so they temp them out."
Mark Marcon, senior equity analyst at First Union Securities in Richmond, Va., says the best stock buys today include companies that perform "back-end" work for e-commerce companies--the people who package bottles for Wine.com or take orders for eToys, for example.
"If you order a book from Amazon, somebody has to take that order, pick the book up, and ship it to you," Marcon said. "Manpower provides people who do that--not Amazon."
"="" stock="" chart"=""> One of Marcon's favorite "stealth plays": RemedyTemp of Aliso Viejo, Calif. The company provides clerical and light industrial temporary staffing in 37 states through a network of 234 offices. Its stock has doubled since November.
Another industry that indirectly participates in the Internet economy is the shipping business--companies such as Atlanta-based United Parcel Service (UPS), which carries an estimated 50 percent of all e-commerce shipments, and Memphis-based FDX's Federal Express subsidiary.
Shippers especially poised to profit from e-commerce are logistics companies--those known as "freight forwarders," analysts say. Those companies move products and organize the flow of information from suppliers to employees to clients.
"Their core abilities, as I see it, are optimizing a network and managing information," said Peter Coleman, senior logistics analyst at Banc of America Securities in New York. "Isn't optimizing a network and managing information exactly what is at the core of this Internet revolution? If so, the future of logistics companies has never been brighter."
UPS and FedEx are the largest players, but small competitors abound. Coleman is optimistic on Seattle-based Expeditors International, which provides air and ocean freight forwarding, vendor consolidation, customs clearance, marine insurance and distribution.
He's also bullish on C.H. Robinson Worldwide, a 95-year-old company based in Eden Prairie, Minn. It's the largest provider of third-party logistics services in North America, overseeing a transportation empire ranging from fresh produce shipments to freight consolidation in North America, Europe, Latin America and South Africa.
"They don't own assets but arrange for trucks and shippers to get things moved," Coleman said. "It's not all that different than you would see in a new online exchange."
Other companies hanging onto the coattails of the high-tech boom are those with substantial real estate holdings in Silicon Valley, the greater Seattle area, Southern California and other regions with high concentrations of tech businesses.
Spieker Properties of 
Menlo Park, Calif., is a real estate investment trust that owns and operates suburban commercial property in California and the Pacific Northwest. Spieker's stock price has increased 34 percent in the past year as office property values soar in Silicon Valley.
"The underlying leasing strength and the low availability of space is causing rental rates to increase dramatically," said Chris Haley, analyst at First Union Securities of Richmond, Va. "Part of it is the drama and excitement of the market, and part of it is the tech boom."
Stuart Rothstein, chief financial officer of Spieker, said five years ago that Class A office space in San Jose, Calif., sold for roughly $16 per foot annually. It's now $45. The price climbs to at least $50 in San Francisco and up to $70 for offices in between, in cities such as Palo Alto and Redwood City.
Rothstein said the Internet has not created an economy where employees work at home or in offices far from corporate headquarters.
"At the end of the day, an economy with 4 percent unemployment with a premium on brainpower allows the most talented people to pick where they live first and have the companies chase them," Rothstein said. "We made a conscious decision to focus on the finest suburban office markets on the West Coast because people are choosing to work in places where they can have a comfortable lifestyle inside and outside the office."
A word of warning for investors, even those investing in non-tech companies getting a boost from the tech sector, comes from Michael Lehmann, professor of economics at the University of San Francisco. He believes the stock market is sorely overvalued and that conservative investors should pull out entirely, as he has.
"I'm very leery of the whole market right now because of the price-to-earnings ratios--they're crazy," Lehmann said. "I look at the whole thing with a very jaundiced eye. The more you inflate the balloon, the more sure it's going to pop."