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Time to Buy US Tech Stocks at a Discount?

Nov 16, 2018

 

  • US tech stocks are our focus today as investors have begun to reassess their expensive valuations as fears that giants like Amazon (AMZN), Apple (AAPL), and Alphabet (GOOGL) have reached peak earning levels are at the forefront of investor concerns.  
     
  • The price ratio between the Nasdaq 100 Index (NDX) and the S&P 500 (SPX) has fallen 3.9% to 1.3129 since July 13th, 2018’s ratio of 1.3666, as seen in the chart below. 
     
  • The decline in the price ratio between US tech stocks and the broader US stock market has been driven by underperformance of US tech stocks -- since July 13th, 2018, the Nasdaq 100 Index has generated total returns of –6.18% while the S&P 500 has generated total returns of –1.57%.  
     
  • Several stocks in the Nasdaq 100 Index have specifically dragged the tech composite lower since July 13th, 2018 -- Electronic Arts (EA) has returned –42.13%, Ctrip.com International (CTRP) has returned –41.04%, Western Digital Corporation (WDC) has returned –40.95%, and JD.com has returned –39.51%.
     
  • The recent sell-off of US tech stocks may represent a strong buying opportunity for investors. Investor fears that US companies have reached peak earning levels, which has hit US tech stocks the hardest due to their expensive valuations, may be unwarranted. Unlike other sectors like consumer discretionary and industrials, tech stocks may be less exposed to cyclicality due to the nature of their business models.
     
  • So far through CY3Q2018 earnings season, tech stocks in the S&P 500 have generated average y/y EPS growth of 31.76%, displaying no signs of slow growth.
      
  •  Of the four tech companies discussed above, Western Digital Corporation (WDC) is rated “Top Buy” in our US Information Technology Global Top Stock Ideas.
     
  • Out of the additional stocks in the Nasdaq 100 that have fallen more than 20% since July 13th, 2018, three are rated “Top Buys”. 
     
  • Activision Blizzard, Inc. (ATVI) is rated “Top Buy” in our US Information Technology Global Top Stock Ideas, NVIDIA Corporation (NVDA) is rated “Top Buy” in our US Information Technology Global Top Stock Ideas, and Micron Technologies (MU) is rated “Top Buy” in our US Information Technology Global Top Stock Ideas. 

 

Source: Capital IQ