Published on April 3rd, 2020 | by Ali Dino0
Tech Stocks Starting to Peak Out: Evidence to Tell
There is an adage that says, “Buy when there’s blood in the streets”.
Well, Wall Street is a blood bath now and so are many other bourses from around the world. The month of March is slowly gaining notoriety as stocks hit their lowest values since the Great Recession.
To many investors, this is a Deja Vu kind of moment. March 9, 2009, was the day that stocks plunged to the lowest levels of the recession.
This month, the big three indices registered huge percentage losses on March 9, 2020, with the Dow Jones reporting a 7.29% drop, its largest in history. On that same day, the technology weighted NASDAQ Composite shed 625 points as the panic-stricken stock trading investors pulled out of equities.
The COVID-19 epidemic currently sweeping across the globe is bringing the global economy to its knees and routing what was a Goldilocks scenario priced the market at the beginning of the year.
As an illustration, the broader-based S&P 500 was at its highest of all time value of 3,394 in mid-February. On March 9, this index lost 226 points in a single day.
Overpriced Stocks Shedding Value
The ongoing epidemic is not only a health threat but a financial one as well. It is disrupting supply chains and bringing large industry sectors like travel and hospitality to a dead halt.
For many investors, the ongoing fall in stock prices is the signal that they have been waiting for. Before the plunge many investors had reassessed the high premiums that they had to pay to access valuable equities.
At some point, many wondered whether the market was worth the huge price tags. In the past stock prices have become outrageously priced despite repeated stock market drops.
In 2019, the prices of these stocks kept rising as their earnings peaked out. Investors were getting poor returns for their risk. The novel virus epidemic has kicked up a cycle of doubt, which has escalated the effects of disrupted supply chains and lack of a retail footfall on major tech stocks.
The current downturn could, therefore, be that opportunity that investors need to purchase high-quality tech stocks at 25% less the price that they had last year. The tech stocks are a particular place to get back to equities trading once the market stabilizes.
As an illustration, Apple, Microsoft, Amazon, and Alphabet stocks, who were members of the $1 trillion equities cap club all have their stocks in the red, but they are showing signs of a rebound.
Cash Backs Tech Stocks
Piper Sandler’s chief market technician Craig Johnson predicts that Alphabet and Amazon stocks will give investors the greatest potential in the current plunging market.
He says that should Alphabet stocks hit the $1000 spot and Amazon’s the $1,700 mark, then they would give investors the perfect buy spots.
His investment advice to investors:
“it’s very critical before the washout takes place to pull that playbook out and say, ‘Hey, these are the levels where we want to step up and buy these stocks’ and writing some puts on these names in here, I think, is a great way to do it.”
Unlike other stocks in the market, tech stocks have one other great advantage. Their businesses have a lot of cash backing them. As an example, when Uber stock fell from early February, they lost over 64% of their earlier value.
The company’s CEO had one last but fantastic ace up his sleeve. He scheduled a conference call telling investors that Uber had over $10 billion worth of uncommitted money in banks. The brand also had an additional $2 billion revolving credit line.
One more thing Uber has as an advantage is no long-term debt to finance before 2023. He comforted investors by telling them that should the epidemic drown most of Uber’s business, the company would still manage and have $4 billion in the bank at the closing of 2020.
Right after his conference call, Uber’s stocks soared by 40%. The epidemic has proven that cash can calm the investor’s nerves, and tech companies have a lot of it. All big five-tech companies have fantastic balance sheets with over $587 billion in cash in the bank.
Apple holds over $207 billion against a borrowed value of $108 billion, Alphabet has $128 billion in cash holdings. The loss of value in these stocks is a great investment opportunity. The cloud computing dominated by Microsoft, Amazon and Alphabet, a technology that allows remote working, will also grow in the epidemic’s wake. Their stock values can, therefore, can only rise higher.