FOUR DAYS PAST

New Year's Eve and technology stocks look like they're still nursing the mother of all hangovers. The tech-heavy Nasdaq Composite Index has given up about 6% so far this very new year. That's not a reassuring start, especially considering the Nasdaq Composite rose nearly 10% in 2007, easily outpacing the Dow Jones Industrial Average and broader S&P 500. Tech investors have to ask themselves if last year's tech run was just a beautiful dream or a decadent bender.

But the same fundamentals that stood tech well in 2007 remain in effect in 2008. There is the uncertainty surrounding a slowing economy and soaring commodities costs that affect all equities, to be sure. And there is special cause to be concerned over what's happening with financial firms historically big tech spenders. Still, when all is said and done we remain in a global cyclical upswing and, as growth stocks, techs do have a better chance to outperform. Strange as it may seem, the tech sector is relatively defensive in this environment.

"Tech is not a bad place to be," says Michael Church, a portfolio manager with Church Capital Management, an investment advisor in Yardley, Pa. "You have a lot of global growth and a lot of companies with very strong balance sheets that can weather an economic storm. Most of them are flush with cash without a speck of debt."

In particular, companies that make network equipment appear poised for a good year, Church says. That's because the telecoms and cable companies are in a death match to deliver TV, Internet and phone services to consumers' homes, not to mention the burgeoning deployment overseas of WiMax broadband networks. That puts Cisco Systems in a very solid position, says Church.

Cisco, which makes the switches and routers that are the backbone of data networks, has seen its stock fall more than 3% so far this year, making the valuation fairly compelling. At less than 15 times forward earnings, shares trade at a discount to the broader market.

EMC, the data storage company, is another one of Church's favorite names. "The growth of data is going to continue whether there's a recession or not," he says. Church also likes the fact that it's a cheap way to play VMware, last year's IPO darling, which makes virtualization software, or software that enables a single server or PC to run multiple operating systems. EMC spun off a stake in VMware in mid-August and the stock rocketed as much as 145% in late October before cooling off. It's still up more than 57%, but it's volatile.

"EMC is a low-cost entry point to exposure to VMware," Church says. "That story is out there but I don't think it has gotten the reflection that it fully deserves, possibly because people expect VMware to be extremely volatile and the price could come tumbling down at any point. There's some legitimate concern there. But at the end of the day EMC owns an 86% stake in a company that's got a $31 billion market cap that's growing earnings at a 200% clip. If VMware holds up you're buying EMC's storage business for pretty cheap."

Cisco and EMC are big with broad revenue sources two keys to the defensive aspects of tech in 2008 and that also makes stolid International Business Machines a good pick for turbulent times, says Kim Caughey, an analyst with Fort Pitt Capital Group, whose Fort Pitt Capital Total Return fund has a stake in Big Blue.

"The theme for corporate IT spending, now and for several years, has been to simplify, use fewer vendors, and have software and hardware that works together out of box," Caughey says. "Companies that benefit from that are the big majors like IBM. It has global reach and it really is a one-stop shop. That allows them to have higher margins."

Caughey also likes the fact that although IBM is old, it's not hidebound. For example, even though the company had a long, proud tradition of making PCs, it had no qualms about selling the business once it became clear that computers were becoming commodities. IBM's stock has crumbled more than 6% this week, making its shares, at less than 13 times forward earnings, look cheap.

Joe Clark, managing partner at Financial Enhancement Group, thinks that 2008 will be a volatile year and that tech will come to the forefront. Like Church, he's bullish on Cisco, but Clark's also optimistic for software and gadgets.

For diversified, cheap exposure to software, Clark favors iShares S&P GSTI Software, an exchange-traded fund. "It's probably the best representation that we've seen for the software side directly," he says. "And the best one that we have found for gadgetry is PowerShares Dynamic Hardware & Consumer Electronics."

Either way, it's clear investors need to have some exposure to tech, Clark says. For his smaller clients, with accounts under $100,000, he recommends the good old "Cubes," or the PowerShares QQQ ETF, which tracks the largest nonfinancial stocks in the Nasdaq.

"With the Cubes, it is what it is," he says. "You've got almost 60% of it in information technology, which matches our overweight, and you've got some gadgetry devices in there. And the expense ratio is 0.2%."

Of course tech's by no means a sure thing this year. Financial firms could cause a lot of grief. As Caughey says, "When companies are battening down the hatches they don't really care that a tech investment is going to save them money in the long run." And any economic slowdown in the U.S. will eventually be felt overseas. But with 2008 shaping up to be a lot like 2007, global revenue streams and cash-rich balance sheets give techs a better than fighting chance.