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After years as stock market heavyweights, Big Tech stocks look a lot like an early Rocky Balboa: beaten up and on the ropes.
The rout has been such that even members of the Magnificent Seven are undervalued and investors should buy the dip, Goldman Sachs analyst Peter Oppenheimer wrote in a note to clients on Tuesday. The Roundhill Magnificent Seven ETF, which offers equal exposure to Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla, has fallen about 11% for the year amid concerns about the disruption of artificial intelligence and the war with Iran, which has choked off oil supplies. But the continuation of the military conflict could lead central banks to cut interest rates to avoid a recession, and that’s something tech stocks tend to like.
“The risk is that the longer the Strait of Hormuz disruption lasts, the more this morphs into a perceived growth shock, limiting interest rate increases,” Oppenheimer wrote in the note, published before a two-week ceasefire was agreed to on the condition that Iran reopen the Strait. “Given the relative insensitivity of cash flows in the technology sector to economic growth, and the benefit that would accrue from any rebound in bond yields, this sector could prove more defensive in the coming months.”
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Technology giants have been synonymous with growth in recent years. But now they have fallen behind some surprising market stalwarts. Walmart, for example, trades at a higher price-to-earnings ratio than Amazon.
“That’s a bit of an anomaly,” said Jed Ellerbroek, portfolio manager at Argent Capital Management. The daily advantage. Typically, faster-growing companies trade at higher multiples. Therefore, it is a good opportunity to buy big technology shares, adds Ellerbroek. Not just because they are relatively inexpensive, but because “their businesses are doing very well,” something he predicts will be underlined during quarterly earnings reports.
Investors who want to buy on the dip will have a long shopping list:
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Morningstar recently named Microsoft one of the most undervalued stocks to buy. Broadcom and NXP Semiconductors were also on the list. “We remain confident in secular tailwinds in technology, including cloud computing, artificial intelligence and the long-term expansion of semiconductor demand,” the analysts wrote. “After months of poor performance, we believe the software offers the greatest advantages in the industry.”
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Along with technology, Morningstar says communication services, real estate and consumer cyclicals appear the most undervalued at the start of the second quarter. Defensive energy and consumer stocks look the most overvalued.