They may be thudding into multi-year lows but portfolio manager David Burrows of Barometer Capital thinks it’d be a bad idea to go on a tech stock shopping spree.
“To put in perspective, right now, of all of the assets that we manage, Barometer has approximately four per cent in technology. That tells you how we feel about the sector currently,” said Burrows, president of Barometer Capital, speaking on BNN Bloomberg on Monday.
“[Technology stocks] are about 28 per cent of the S&P 500, so it’s a significant underweight,” he said.
The bears are officially out of hibernation and wreaking havoc on the tech sector with a vengeance. Now a good three months into negative market sentiment towards the growth-oriented space, investors continue to vacate stocks like the so-called FAANG names of Facebook/Meta Platforms, Amazon, Apple, Netflix and Google, which cover areas like e-commerce, digital advertising and hardware. But other spaces are hurting, too, with fintech names PayPal and Block seeing their share prices cut in half and software companies like Adobe and Microsoft also enduring pullbacks well into the double-digits.
A combination of out-sized growth over the past two pandemic years and now rising interest rates have pushed investors into more defensive areas of the market like banks and utilities, while tech companies, like those in many sectors, continue to deal with supply chain constraints.
The proof is in the tech-heavy Nasdaq Index, for example, which is down almost 20 per cent since mid-November and over the past four months has now erased roughly all of the gains made over the previous eight. The TSX Information Tech Capped Index has also lost about 34 per cent of its value since mid-November.
All told, that makes for a rough market, says Burrows, who was asked in particular about networking and telecom name Cisco Systems (Cisco Systems Stock Quote, Charts, News, Analysts, Financials NASDAQ:CSCO) and said it might be one of the better picks from the bunch.
“Cisco among the companies are doing well. It’s interesting, value tech is doing a little bit better, companies that have a dividend that will provide some dividend growth that are not as overwhelmed are behaving a little bit better,” said Burrows.
“But Cisco is still trading below the 200-day moving average and is still trading below the 150-day moving average. I wouldn’t be in a hurry to run out and buy it, but if you want to buy tech, Cisco is a great company. And certainly there is spending going on the data networks and Cisco is certainly participating in that,” he said.
“But I’d just be very careful of adding too much in the tech space currently,” he said.
Cisco, with a 2.6 per cent yield on its dividend, has dropped almost 13 per cent from its late-December high of just under $64 but the stock is merely flat over the past six months and is still up plenty over the pandemic, returning about 60 per cent over the past 24 months.
The company reported strong numbers in its latest earnings report, Cisco’s fiscal second quarter 2022, where revenue was up six per cent year-over-year to $12.7 billion and non-GAAP EPS was also up six per cent to $0.84 per share. The company has been working on transforming its business model and posted annualized recurring revenue up 11 per cent year-over-year to $21.9 billion, while on guidance, management called for full fiscal 2022 revenue growth of between 5.5 and 6.5 per cent and EPS between $3.41 and $3.46 per share.
“We continue to see incredibly strong demand across our portfolio, emphasizing the criticality and relevance of Cisco’s innovation,” said Chuck Robbins, chair and CEO of Cisco, in a press relase. “Our robust order strength, record backlog and double-digit growth in annual recurring revenue position us well to deliver growth.”
Along with tech, Burrows is also bearish on the healthcare space, noting pharma and biotech as further areas in the current climate that deserve caution from investors.
“We come at things from a top-down perspective and try to focus on themes where multiples are expanding, and it’s the exact opposite right now in healthcare and especially in biotech as a whole,” said Burrows. “Biotech and pharma are difficult but biotech, in particular, if you looked at the [SPDR S&P Biotech ETF] we’re basically at 52-week lows.”
“Don’t try and pick bottoms. There are some people who are really good at valuing things. It’s not us. I need to see a technical backdrop that supports a positive view and these [sectors] just don’t have that backdrop currently,” he said.
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