The most useful slide from my presentation last week at the annual Wealth Society summit is probably this one:

The table on the left shows that technology stocks been market leaders for the last year, picking up steam last month even as the “Trump rally” finally stalled. The one on the right illustrates the extent to which some of the largest tech stocks have dominated the field so far in 2017.

If the recent spell of modest market weakness were to turn into an outright correction some of the tech sector’s designated “safe harbors” could certainly get swamped by a rogue wave or two. But in this business you have to trust the durable, clearly apparent trend, especially when it’s in tune with fundamentals.

 The industrial sector across the globe is only just emerging from a protracted slowdown in growth. Meanwhile, technology investments continue to consume a rising share of corporate budgets because they tend to have the quickest payoffs. Replacing costly humans with software is pretty much the lowest-hanging fruit for managers looking to lift the profit margin.

That spending has increasingly been captured  by an elite circle of large tech companies helped by large client bases and popular service platforms, economies of scale, huge cash stockpiles and some of the most talented and productive developers.   

Yet despite all those advantages mega-techs remain cheap relative to large-cap energy and staples stocks with considerably dimmer prospects.

Microsoft (MSFT) with its $33 billion of cash net of debt is priced at 14 times cash flow, while ExxonMobil (XOM)  and its $39 billion of debt fetches 16 times cash flow.

Alphabet (GOOG) could use its $82 billion in net cash to pay off the debt of five Procter & Gambles. PG posted a 0.3% year-over-year revenue drop in its most recent quarter, while Alphabet’s sales were up 22% in a year’s time. Yet GOOG is at 16 times cash flow while PG gets 17 times.

These disparities are a legacy of a time when ExxonMobil and P&G were unsinkable battleships, while tech was seen as a highly cyclical and risky business. Today, Microsoft and Google wield massive competitive advantages that partially insulate them from the economy’s ups and downs.

And like most leading mega-cap techs they’re debt-free cash machines. GOOG dominates the search advertising market with little opposition and MSFT is the leading supplier of cloud services to corporate America. Their stocks are likely to continue outperforming in the current economic and investing environment.

I’ll be adding them to the portfolio at Monday’s opening prices. Buy GOOG below $920 and MSFT under $75.