Are computer chips and software code now as safe as shampoo and laundry detergent?

To me, that's the biggest investing takeaway in the news last week that Warren Buffett recently made his first major foray into tech stocks, with purchases of IBM (IBM, news), and Intel (INTC, news).

Cautious investors like Buffett typically seek "safety" in consumer staples companies like Johnson & Johnson (JNJ, news) or Procter & Gamble (PG, news).

After all, these companies get dependable revenue by selling stuff people keep buying even during hard times -- like baby shampoo, Crest toothpaste and Tide detergent. In fact, this "recurring revenue" is a big reason these two companies are major positions for Berkshire Hathaway (BRK.B, news).

But tech stocks? If you've ever lost money in roller-coaster technology stocks, you might not think of them as safe havens.

image: Michael Brush

Michael Brush

It's time to rethink that.

Tech necessities

As the Oracle of Omaha's move into IBM and Intel suggests, many tech companies are actually as "defensive" as businesses selling paper towels and razor blades. In short, they provide stability in a volatile market, with the potential for decent upside because they sell products that companies and consumers need.

Buffett is not the only one who thinks so.

At a presentation in New York City last week, James Swanson, the chief investment strategist at MFS Investment Management, made the case for investing in tech as a defensive move to cope with the market and economic uncertainty that 2012 will surely bring. "We always thought of technology as highly charged, but the tech sector is much more defensive than it used to be," says Swanson.

That's because a lot of tech companies boast qualities that make them safe, says Swanson. First, they have financial strength based on dependable cash flows, solid profit margins, built-in recurring revenue and lots of cash. Next, they have a global reach, which eliminates exposure to any one country's business cycle. And many even have arguably cheap valuations, which may protect against declines during market sell-offs.

All of this brings relatively low volatility -- a nice quality when wild weekly market swings bring stress.

In contrast, many of the traditional "defensive" plays in health care and basic consumer goods face uncertainties like questions about government's role in health care and sharp commodity price swings, says Swanson.

The right techs for safety

Of course, not just any tech company can provide safety in a storm. A new startup with a hot product can flame out fast or tank on an earnings miss. For safety, with the potential for growth, you have to look among the tried-and-true tech survivors, or the tech "dinosaurs," as Todd Lowenstein, portfolio manager of the HighMark Value Momentum (HMVMX) fund, calls them. By that, he means the bigger tech companies like IBM and Intel that survived the tech bubble and continue to serve established markets.

The tech dinosaurs are often viewed as has-beens. "There is the perception that they will not participate in the next trend," says Lowenstein. These dinosaurs, however, typically have entrenched positions in their markets that allow them to produce solid profits and cash flows. And, as we will see, many of them are participating in some hot trends, so there's the potential for decent growth, too.

Besides IBM and Intel, I'll put EMC (EMC, news), a storage company, on a short list of "defensive" tech plays, as well as Cognizant Technology Solutions Cognizant Technology Solutions (CTSH, news), which provides software development, maintenance and testing services. I'm also including Apple (AAPL, news). It's not really a dinosaur, of course, but the stock looks cheap, and it has many of the other characteristics of defensive tech plays.

Let's take a look.