Stock watch: Bigger IT budgets boost stock prices

Email to a Friend

Higher information- technology (IT) budgets at publicly held firms appear to bring in greater profits and better stock market returns. U.S. companies that invested heavily in IT, compared with other like companies in terms of risk and size, saw stock market-return increases of 1 percent to 3 percent on average, according to research conducted by Vernon Richardson, accounting professor at Sam M. Walton College of Business at University of Arkansas, and colleagues. The researchers studied large IT-spending firms, known as the Information Week 500.

However, finding out which companies are expanding their IT budgets is a problem for investors, Richardson says. (Richardson wants Securities and Exchange Commission to require disclosure.) He suggests looking for constant IT investment, such as Wal-Mart’s (NYSE: WMT; Price: $51.39) institution of radio-frequency identification to track inventory. FedEx (NYSE: FDX; Price: $66.80) and Procter & Gamble (NYSE: PG; Price: $60.88) also are leaders in IT innovation, he says.