It was September 1999 — an exciting time for up-and-coming technology companies like IMS Health (NYSE: RX). Spun-off by Nielsen Media the year before, the healthcare information specialist was standing on its own for the first time — and the future was bright.

IMS was the industry’s go-to source for analytical software and consulting services. Whenever drug makers like Pfizer (NYSE: PFE) needed tools to evaluate trends or identify new markets, they turned to IMS.

The company had become a vast repository of drug sales data for any firm interested in optimizing its sales. IMS had 319 million shares trading at about $25, pinning a rich price tag of nearly $8 billion on the company.

In hindsight, that may have been excessive considering the firm took in just under 3% of that amount in profits that year. But this was the height of the dot-com revelry, when investors didn’t hesitate to pay 30 times earnings for a stock. That multiple looked downright cheap next to highfliers trading at P/Es above 100 — if they had earnings at all.

But IMS Health survived the crash. Today, it gathers and interprets critical market intelligence on more than one million products dispensed at 700,000 sites. It does business with virtually every major pharmaceutical and biotech firm in the world. More importantly, annual sales are about $1 billion more than they were back then, and earnings have doubled from $0.78 to $1.70 a share.

Yet, for all its progress, the firm’s shares have dropped under $15. And thanks to stock buybacks, the 183 million shares circulating mean the firm’s $8 billion price tag has been slashed -70% to $2.5 billion — even as profits have risen more than +115%.

That once pricey P/E of 30 has shrunk to around seven.

So what does this mean? As you’ll see below, there are plenty of attractive global leaders like IMS whose businesses and share prices have moved in two opposite directions during the past decade — setting up a rare opportunity for investors.

#-ad_banner-#All Signs Point to Buy
It’s not secret most tech companies have made tremendous investments since the late-1990s. Consumers have gone from boxy car phones and dial-up Internet to iPhones and Blu-Ray players. But many high-quality stocks are cheaper now than they were then.

I can count approximately 215 in the software group alone.

The dot-com collapse brought the entire tech sector to its knees, and this latest selloff kicked the group while it was down. If you’re keeping score, that’s two “once-in-a-generation” pullbacks in the span of 10 years.

The benchmark Nasdaq sits near 2,100 — some 650 points below the level from September 1999 where it first began the meteoric rise above 5,000. It would have to climb about +40% just to get back to base camp.

Thinning of the herd can be healthy. But for every eToys (which once fetched $80 a share before spiraling into oblivion), there’s an IMS Health.

Here’s a small sample of the glaring disconnects I’ve found in the tech sector:

Company	Sept. 99 Price	Sept. 09 Price	% Change	1999 EPS	2008 EPS	% Change
Cisco Systems (Nasdaq: CSCO)	$34.28	$23.26	-32%	$0.31	$1.31	+322%
Dell (Nasdaq: DELL)	$41.81	$16.92	-60%	$0.61	$1.25	+105%
Microsoft (Nasdaq: MSFT)	$37.17	$25.20	-32%	$0.85	$1.62	+91%
Broadcom (Nasdaq: BRCM)	$36.33	$30.21	-17%	$0.24	$0.41	+71%
Applied Materials (Nasdaq: AMAT)	$18.33	$13.39	-27%	$0.46	$0.70	+52%
EMC (NYSE: EMC)	$34.92	$17.02	-51%	$0.46	$0.64	+39%
AVERAGE			-36%			+113%

These titans are delivering double the profits from 10 years ago, but their shares have been discounted nearly -36%. It doesn’t take a rocket scientist to see that whenever “P’s” are moving south and “E’s” are heading north, P/E multiples will contract rapidly.

It seems the pendulum has swung from one extreme to the other. But compelling valuation is only part of the story here…

Keep in mind, tech companies generally carry little debt and are free from the financial havoc that has plagued other sectors. They are less dependent on sluggish consumer spending and more reliant on business investment. This should strengthen as companies look to boost productivity rather than hire new workers.

On the whole, tech companies are innovative, resilient and highly scalable. Many of the hardest hit victims in my list are cash machines with robust margins, durable competitive advantages and lofty returns on capital. This is why investors have been happy to pay a premium for these stocks over the years.

The tech-heavy Nasdaq is up nearly +25% year-to-date — double the S&P 500 Index and triple the Dow Jones Industrial Average. I don’t think this sale will last much longer, and I suspect this outperformance will continue.

P.S. What are my top two favorite ways to play the tech sector right now? Get their names and symbols here.