Tech Stocks – A “Win-Win-Win”?
Technology - A “Win, Win, Win”:
Technology stocks seem to be eerily appropriate for the famous “win-win-win” term that was coined by Michael Scott on the sitcom The Office. Technology stocks are in the sweet spot and continue to appreciate regardless of the COVID-19 backdrop and in today’s economy, feed into every industry. Whether COVID-19 is on the rise or on the decline, technology underpins the stay-at-home economy and the so-called back to normal economy. And now more than ever technology serves an integral part of every slice of the economy that these stocks have remined strong despite the massive rotation into value stocks. Whether the COVID-19 backdrop is good, bad or the market is pricing-in putting the pandemic behind us, the technology sector is in a “win-win-win” situation. Considering many of these names have traded sideways since their September highs and significantly off their 52-week highs, these large cap tech companies may be worth a look in this frothy market. Stocks such as Apple (AAPL), Amazon (AMZN), Alibaba (BABA), Facebook (FB), and Google (GOOGL) fit his profile.
The Value Rotation and Stagnant Technology:
The market has witnessed a massive sea change as the prospects of a large-scale vaccination program in the US coming to fruition. The Dow Jones and S&P 500 have rallied to all-time highs while recovery and value names have recaptured much of their lost market capitalization due to COVID-19. Meanwhile, many technology stocks that powered the market higher in the initial stages of this post COVID-19 rally have stalled out. Once the value rotation began, many high-quality technology names fell from their highs and have traded sideways since their highs back in September (Figure 1).
Figure 1 – Chart overlaying AAPL, AMZN, BABA and GOOGL from September highs through December 18th demonstrating the stagnation over the past 3 months during the market rotation into value stocks
Unparalleled Growth and Valuation:
Some of the large-cap names that have stalled out since September possess unparalleled growth regardless of COVID-19 with compelling valuations despite the massive rally since April. The value rotation has masked these fundamentals and attention has been channeled to the beaten-up value/reopening stocks. Many of the large-cap growth companies are growing at a double-digit clip, possess fantastic balance sheets and putting up consistent earnings. Valuations are reasonable considering their growth profile with P/E ratios at 31, 33 and 37 for Facebook, Google and Alibaba, respectively.
As the world economy continues to grapple with COVID-19, technology names will continue to underpin any economic environment in a “win-win-win” situation. If COVID-19 is on the rise or on the decline, technology underpins the stay-at-home economy and the so-called back to normal economy. Many high-quality technology names have traded sideways since their September highs and are now significantly off their 52-week highs in this frothy market. Stocks such as Apple (AAPL), Amazon (AMZN), Alibaba (BABA), Facebook (FB), and Google (GOOGL) possess unparalleled growth, strong balance sheets and compelling valuations. The value rotation has masked these fundamentals and attention has been channeled to the beaten-up value/reopening stocks. As COVID-19 continues to ebb and flow, these names may be one of few places that look appealing considering these stocks have not participated in the recent rally where all major indices have broken out to all-time highs and the valuations are reasonable.
Disclosure: The author holds shares in AAL, AAPL, AMC, AMZN, DIA, GOOGL, JPM, MSFT, QQQ, SPY and USO. However he may engage in options trading in any of the underlying securities. The author has no business relationship with any companies mentioned in this article. He is not a professional financial advisor or tax professional. This article reflects his own opinions. This article is not intended to be a recommendation to buy or sell any stock or ETF mentioned. Kiedrowski is an individual investor who analyzes investment strategies and disseminates analyses. Kiedrowski encourages all investors to conduct their own research and due diligence prior to investing. Please feel free to comment and provide feedback, the author values all responses. The author is the founder of Stock Options Dad, LLC - www.stockoptionsdad.com where options are a bet on where stocks won’t go, not where they will. Where high probability options trading for consistent income and risk mitigation thrives in both bull and bear markets. For more engaging, short duration options based content, visit stockoptionsdad’s YouTube channel.
Originally published in partnership with INO.com