There isn’t a day that goes by when viewers of financial media channels and outlets don’t get a real-time update on Cathie Wood’s ARKK Fund stocks, or what Tesla Inc. (NASDAQ:TSLA) is trading at in the past hour.
Financial pundits love talking up online gambling stocks, pot stocks, cryptocurrency exchange-traded funds (ETFs), cybersecurity stocks, electric vehicle (EV) stocks and video streaming stocks. While this is considered popular fodder for capturing and keeping eyeballs on cable business channels, all of these companies sport impressive top-line growth, but often have no earnings, no profits and sky-high price-to-earnings (P/E) ratios.
Most, if not all, of these Nasdaq high-beta hotties are trading well off their extreme 2020 highs as a lot of air has come out of their valuations. For some companies, it will be years until they see those highs from last year again, if ever.
Legacy Blue Chip Tech Stocks Marching Without FAANGs
Even some of the vaunted FAANG stocks, composed of Facebook (NASDAQ:FB), Amazon.com (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL), Netflix, Inc. (NASDAQ:NFLX) and Google’s parent Alphabet (NASDAQ:GOOGL), are stuck in the mud, well off their highs. Shares of Netflix Inc., Amazon.com and Apple Inc., in particular, have gone nowhere for months.
At a time when there is so much attention being given to these notable stocks that are all part of what is called the “crowded tech trade,” shares of International Business Machines Corp. (IBM), Oracle Corp. (ORCL), Dell Technologies (DELL), Cisco Systems Inc. (CSCO), VMWare Inc. (WMW), Hewlett Packard Enterprise Co. (HPE) and Texas Instruments Inc. (TXN) are all trading at or near new 52-week highs. Their performance shows the less popular names may have been undervalued compared to the technology industry titans.
It is not surprising to me that the market has turned its attention to tech stocks with real earnings, growing dividends, stock buybacks and reasonable P/E ratios, while all the hotties do what is called “reverting to the mean.” That’s Wall Street lingo for multiple contraction to where lofty stocks are repriced to reflect their organic growth and not the hype that surrounds their future earnings potential.
Market ‘Hotties’ Upstaged by Legacy Blue Chip Tech Stocks Marching Forward
At some point, the market will likely bid up the hotties again when it’s fashionable to do so, but it could be a long hot summer for the high P/E stocks if the current pattern is sustained, as I believe it will be. The old Wall Street maxim of “follow the money” still holds true. Right now, the money is buying blue-chip legacy tech with both hands.
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