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Technology stocks are the most oversold they have been since 2015, according to Dan Ives, an analyst at Wedbush Securities.
The tech-heavy Nasdaq Composite
COMP,
has dropped 11% this year — about twice as much as the broader S&P 500
SPX,
— as the yield on the 10-year Treasury
TMUBMUSD10Y,
has surged in response to the Federal Reserve’s plans to forcefully lift interest rates.
Stocks took a further lurch down on Wednesday after minutes from the last Federal Open Market Committee meeting showed the central bank’s plan to reduce its balance sheet by around $95 billion per month.
“Clearly tech stocks are now selling off with this macro news as well as ‘fighting the Fed’ fears into a first quarter tech earnings season in which investors are fearing the worst,” said Ives. “In our opinion, at this point the NYC cab driver knows about the transparent tightening Fed path ahead and we believe fears around a fundamental tech slowdown are way overdone relative to our recent tech checks in the field.”
On a price-to-earnings basis, tech stocks are the cheapest they’ve been since the pandemic hit the Western world in March 2020, with the Nasdaq Composite ending the first quarter on a ratio of 35 times EPS, according to FactSet Research data. That’s also the case on other metrics including enterprise value-to-EBITDA.
The first-quarter earnings reports will be a catalyst, rather than a negative data point, Ives said.
“Our recent enterprise checks coupled by healthy results are showing a digital transformation that is gaining more steam into 2022 (NOT slowing) and we believe investors have run for the exits and sold the tech sector indiscriminately across the board painting all tech names with the same brush,” said Ives.
He advises investors to “strongly” buy cloud, software, cyber security and microchip makers.
He also likes the stalwart tech names in the FAANG grouping, and in particular Apple
AAPL,
“We view Apple as both a Rock of Gibraltar defensive tech name as well as the best 5G tech play in the market with a massive product cycle that is gaining more steam along with its valuable services business which is being undervalued by the Street in our opinion,” said Ives. Apple closed Wednesday at $171.83, down 3% on the year.
Top software names to own are Microsoft
MSFT,
Oracle
ORCL,
Adobe
ADBE,
and Salesforce.com
CRM,
he adds.
